Hibiki Path Advisors Submitted Shareholder Proposals at the 53rd Annual General Meeting of Shareholders of Japan Pure Chemical Co., Ltd. Scheduled for June 25th, 2024
24 May 2024 - 4:00AM
Business Wire
Hibiki Path Advisors (hereinafter referred to as “Hibiki” or
“we”), is an asset management company based in Singapore. Its
business has focused on long-term investment management into
Japanese small-cap equities for domestic and global clients.
Through managing customer assets, Hibiki holds shares of Japan Pure
Chemical Co., Ltd, (hereinafter referred to as “JPC” or “the
company”), from the long-term investment perspective.
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Hibiki Path Value Fund, which has an investment management
contract with Hibiki, has submitted shareholder proposals at JPC
53rd Annual General Meeting of Shareholders scheduled for June
25th, 2024 (details of the two items are outlined below), as
announced (Currently Japanese Only) by JPC on 21st May 2024.
As of March 2024, the amount of investment securities held on
JPC’s balance sheet remains at approximately 8.8 billion yen,
accounting to around 52% of the total assets and about 61% of the
net assets. As shown below, the ratio of Investment Securities over
Total Assets has been rising over the past 5 years without
improvement.
3/2019
3/2020
3/2021
3/2022
3/2023
3/2024
Investment Securities
over Total Assets
38%
37%
48%
50%
49%
52%
Source: Annual Securities Report for the
Year Ended March 2019~2024, Summary of Financial Results for the
Year Ended March 2024
In March 2024, JPC announced “Action to implement management
that is conscious of cost of capital and stock prices”, aiming to
achieve a 10% ROE and to reduce the proportion of
cross-shareholdings to less than 20% of the net assets within the
next 1 to 2 years. Hibiki recognizes that a large-scale share
buyback using funds from the sale of investment securities is
essential in order to vigorously promote its announced policy.
Therefore, Hibiki Path Value Fund has made two shareholder
proposals. The outline of the proposals is below.
① Partial Amendment to Articles of Incorporation
(Decision-Making Body for Determination of Surplus Distribution,
etc.)
Propose to amend Article 44 of its Articles
of Incorporation as it solely designated the authority of the Board
of Directors to determine matters concerning the distribution of
surplus funds, excluding the authority of the general meeting of
shareholders, which inherently possesses such authority.
② Shares Buy-Back
Propose a share buyback of 4.8 billion yen,
which is equivalent to the "Valuation difference on
available-for-sale securities" on its December 2023 Balance Sheet
net equity section, which represents the portion for after-tax
unrealized gains on such investment securities.
In the press release issued by JPC on May 21, 2024, the Board of
Directors expressed their opposition to our shareholder proposals.
As a long-term investor, we have been engaging with them in
constructive dialogue regarding the optimization of capital
efficiency emphasizing the importance of improved corporate
governance standards. We regret that the Board did not accept our
latest proposals and we outline our perspective on the Board's
opposing views.
Regarding Board’s opposition to
Shareholder proposal ①
JPC is opposed to the Shareholder Proposal ① under the context
that "the amendment to the articles of incorporation was not
intended to restrict shareholders' return.” However, as evidenced
by the Board's opposition to our Shareholder Proposal ① and ②, we
can conclude that these articles of incorporation can effectively
restrict shareholders to submit shareholder proposals deemed as
appropriate means of shareholder return.
JPC also cites "the need to implement flexible shareholder
distribution strategy by board resolution" as the reason for their
opposition. However, as already mentioned in our “Reasons for the
Proposal,” even after the Articles of Incorporation are amended as
proposed, it is systematically ensured that the Board of Directors
can pass resolutions for the distribution of surplus, etc.
Therefore, the above reason for opposition outlined by the company
cannot be the basis for opposing shareholder proposal ①.
JPC also claims that “if both proposals (Propositions 1 and 2)
are approved, the board of directors will have less freedom in
making decisions regarding shareholder distribution/payout, making
it difficult for the company to flexibly return profits to
shareholders.” In fact, the proposals will not “hinder” the board
of directors' freedom to make decisions on shareholder
distribution/payout, but rather will solidify the company's board
of directors' efforts to reduce the proportion of
cross-shareholdings to less than 20% of the net assets within the
next 1 to 2 years aimed to improve its ROE. We believe that our
proposal is in line with the direction which the management has
indicated, and also in line with the overall market direction of
being “conscious of the share price and the cost of capital.”
Regarding Board’s opposition to
Shareholder Proposal ②
JPC is concerned that if Shareholder Proposal ② is approved, it
would significantly impair long-term growth and financial soundness
given the current situation without sufficient financial resources.
However, as mentioned above, the company not only owns
approximately 8.8 billion yen in highly liquid investment
securities, but also 6.1 billion yen in cash and deposits, and has
no interest-bearing debt. We believe that “sufficient resources”
have already been secured. If the company does not buy back its own
shares on the scale proposed in this proposal when it reduces its
strategic shareholdings to less than 20% of net assets in the next
one to two years as announced, we are concerned that cash deposits
with low returns that are not commensurate with the cost of capital
will accumulate further on the balance sheet.
JPC’s Board of Directors also claim that the low liquidity of
its shares makes such share buyback "impractical." However, there
are already various methods of share buy-back regardless of
liquidity, such as ToSTNeT-3 acquisitions from strategic
cross-shareholding counterparties, and with the company indicating
its intention to reduce its strategic shareholdings, share buy-back
as a means of dissolving crossholdings is a highly realistic and
required option. As the company has indicated its intention to
reduce its policy cross-shareholdings already, we believe that
share buy-back as a means of eliminating crossholdings is an
extremely realistic approach.
We kindly ask all shareholders to fairly and carefully assess
our shareholder proposals with the viewpoint of what is essential
for maximizing JPC’s corporate value.
Please also refer to the link below for the details and
rationale of the proposed items by Hibiki.
Details of Shareholder Proposal
24th May 2024
Note: This post does not constitute a solicitation for an offer
to acquire or recommend the purchase or sale of specific
securities, or advice on investment, legal, tax, accounting, or any
other matters. In the event of any discrepancy or conflict between
the English and Japanese versions, unless otherwise noted, the
meaning of the Japanese language version shall prevail unless
otherwise expressly indicated.
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version on businesswire.com: https://www.businesswire.com/news/home/20240523668199/en/
Yuya Shimizu Representative Director and Chief Investment
Officer Hibiki Path Advisors www.hibiki-path-advisors.com
info@hibiki-path-advisors.com