In recent years, Japanese companies have faced heightened pressure to boost their share prices and enhance corporate value. This pressure has been amplified by new delisting regulations from the Tokyo Stock Exchange (TSE), particularly the requirement for companies to maintain a market capitalization of at least 4 billion yen. In response, some companies have resorted to inventive tactics to stay afloat. One such strategy involves the introduction of shareholder benefits, or kabunushi yutai.
TSE’s Listing Criteria: A Balancing Act
The Tokyo Stock Exchange has set stringent criteria for continued listing. Companies must maintain a market capitalization of at least 4 billion yen, which is particularly challenging for those listed on the Growth Market. For these companies listed on TSE growth, the market capitalization threshold is 4 billion yen, applicable after ten years of listing (rule updates in April 2022). Companies failing to meet these criteria have one year to comply, or they face delisting. There are, however, transitional measures allowing some flexibility. For instance, companies applying these measures need only maintain a market capitalization of 0.5 billion yen until 2025 (for details: JPX).
Ingenious Tactics: The Case of Media Kobo
Media Kobo (3815 JP), a company known for its digital content such as horoscopes and XR (extended reality) services, listed in 2006 and had a market capitalization of less than 4 billion yen, has taken a bold step in this direction. On 18 June 2024, Media Kobo unveiled a new shareholder benefit program. Shareholders holding 100 shares for less than a year as of the end of August will receive a QUO Card Pay worth 4,000 yen. Those holding shares for over a year will receive a QUO Card Pay worth 5,000 yen. This implied nearly 17% yield to the shace on the day of the announcement.
A QUO Card is a type of prepaid card widely accepted in Japan, similar to a gift card, which can be used at various participating stores and establishments. The QUO Card Pay is the digital version of this card, offering the same convenience but requiring a smartphone for transactions.
Downward revision and Dividend Cut
This seemingly attractive offer comes with significant caveats. Media Kobo announced a special loss and a downward revision of its full-year earnings forecast. The revised forecast projects a sales revenue of 1.993 billion yen, down from the previous estimate of 2.2 billion yen. Moreover, the company now expects an operating loss of 106 million yen, compared to a previously anticipated profit of 60 million yen. The forecast for ordinary income was also revised to a loss of 113 million yen from a projected profit of 55 million yen.
Adding to the financial strain, Media Kobo slashed its dividend forecast from 3 yen per share to zero, underscoring the precarious nature of its financial health. These drastic measures reveal the underlying instability and cast doubt on the sustainability of their shareholder benefit program.
Despite the grim financial outlook, the announcement of shareholder benefits had an immediate positive impact on Media Kobo’s share price. The stock surged from 239 yen on June 18 to 319 yen after the announcement, and as of June 28, it reached 632 yen and a MC of Y6.4 billion yen.
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The case of Media Kobo illustrates the double-edged nature of shareholder benefits. While they can temporarily boost share prices and attract loyal investors, they must be managed carefully to avoid long-term financial strain. The TSE’s regulations were intended to push companies to genuinely create corporate value, not just find loopholes to maintain their listing status. When used appropriately, shareholder benefits like kabunushi yutai can help reduce volatility by attracting stable and loyal individual shareholders. However, if misused, they divert shareholder capital without truly improving long-term corporate value.
As more companies face similar pressures, it will be intriguing to see how they balance the need for regulatory compliance with the imperative to sustain growth and profitability. The effectiveness of such strategies will ultimately depend on whether they foster genuine corporate improvements or merely serve as temporary measures to appease investors and regulators.
