For the first time since starting a new watch-list system in 2007, the Tokyo bourse has handed out its ultimate punishment.
Japan Exchange Group Inc. will delist Keiozu Holdings Co. this month for failing to stamp out trangressions including inappropriate use of funds. The company, which sells mobile phones and runs call centers, becomes the first designated as a security on alert to meet this fate. While 27 other stocks have been or are on the list, even Olympus Corp. got away without expulsion despite admitting a $1.7 billion accounting fraud.
For SMBC Nikko Capital Markets Ltd., delisting should be the last resort because it penalizes shareholders for the misdeeds of management. Others say the bourse should never shy away from throwing out rule-breakers, as the integrity of the equity market must come first.
“The offense is one committed by the management, and the main victims are the shareholders,” said Jonathan Allum, a London-based strategist at SMBC Capital Markets. “And if a company is delisted, the offense to the shareholders is compounded. The obvious people against whom action should be taken are the management.”
Of the 28 companies named as securities on alert since the exchange started the system in November 2007, 11 were taken off the watch list after convincing the bourse their problems wouldn’t happen again, JPX said. These included Olympus and heavy-machinery maker IHI Corp. Seven were delisted for other reasons, such as failing to meet minimum requirements for market value or going out of business. Nine remain on the list.
The exchange hasn’t got any stricter, says Hideaki Hirose, director of listed company compliance at Japan Exchange Regulation, the self-regulatory body for the bourse. What’s different is Keiozu continued to breach rules and hadn’t fixed its internal controls after three years on the list, he said.
“This will serve as a warning to other companies,” Hirose said in an interview in Tokyo on April 30. “It will tell them punishment awaits for those that transgress.”
Keiozu will be delisted May 29, the bourse said in a statement. The Miyagi-based company was put on the watch list for “inappropriate outflows to the founder and former representative director” and overstating its sales, JPX said. Funds kept being misused and Keiozu didn’t create a system for preventing this, JPX said. The company first sold shares in 2004 and its market value peaked at 5.9 billion yen ($49 million) the following year.
Keiozu’s shares sank 3.9 percent today at the trading break in Tokyo. They’ve dropped 46 percent since Japan Exchange said on April 28 that it would expel the company.
“It definitely should have been delisted,” said Tetsuo Seshimo, a portfolio manager at Saison Asset Management Co. in Tokyo. “If you don’t create the minimum opportunities to punish and throw out problem companies, you give the impression any companies can be on the market.”