Share buybacks from cash-rich corporations have always been an indicator of the fact that the company is in sound health. After all, why would a company keep raising its stake in its company if it didn’t believe in future growth? It is the ultimate sign of confidence and this year, Japanese companies which have been hoarding cash for some time have now gone on a record buyback spree. However, when it comes to the events in Japan, the pressure was initially applied by the investors themselves and in addition to that; the government had also nudged these companies to improve returns. The latest rounds of share buybacks are all set to make sure that strong growth numbers are maintained.
According to data released by a financial data company, this is the biggest round of buybacks since Japan unveiled the new set of laws related to the practice back in 2003. Over the years, the habit of hoarding large amounts of cash has been a constant source of criticism for Japanese companies. Investors argue that hoarding so much cash is detrimental to the returns of equity if the company simply sits on the cash instead of actually investing it.
Seth Fischer of Oasis Management spoke about the latest developments in corporate Japan, and he seemed positive about the buyback spree. “This past month has seen a lot of very positive shareholder-friendly activity from a wide array of Japanese companies. To attract foreign investors, companies should continue this path of increasing shareholder returns, while continuing to improve their corporate governance.” Oasis, which is known for its activism through its investments, has been one of the biggest critics of the cash hoarding tendencies of Japanese companies. The year of buybacks in Japan comes as big victory for activists, investors and foreign institutions which invest in Japan. Argyle Asset Management head Kin Chan stated that this strategy would have a positive impact on return on equity (ROE). He said, “Many Japanese companies simply have too much cash on their balance sheets weighing down their ROEs. Better capital structure management is definitely needed.”
The value of the total share buybacks and the ones that have been promised so far by Japanese companies stands at a staggering 6.5 trillion Japanese yen since the start of April 2018. Recently, some of the giants of Japanese business like Sony, SoftBank Group and Itochu Group among others have also announced their plans for share buybacks. The total share buybacks for these companies is pegged at around 1.3 trillion Yen.