Japan Bb Shares-Ft Article

Japan share buybacks pick up pace ahead of AGM season- Leo Lewis

https://www.ft.com/content/c4a22da4-59d8-11e8-bdb7-f6677d2e1ce8

Toyota plans to buy back 1.7 per cent of its shares for up to ¥300bn

Japan is the third largest economy by nominal GDP & fourth largest economy by Purchasing power parity. Japan has long used foreign trade and investment as its principal tools for national development. World’s most modern infrastructures and highly skilled labour attracts huge investment opportunities in the Japanese markets. Though for the first time since 1989, Japanese economy has witnessed contraction of 0.6% during the first quarter of 2018.

Toyota, The Automobile Giant in the Japan plans to buy back 1.7 per cent of its shares for up to ¥300bn.

What is buy back of shares:

Buy back means repurchase of own shares from the market. The company can buy back the shares from the market or directly from shareholders at fixed price. The shares bought back will be reclassified as treasury shares or it will be cancelled depending on the purpose. Various methods by which company can repurchase its shares. Open market, private negotiations, fixed price tender offer and a Dutch auction are the few methods. 95% buyback transactions are carried through Open Market method.

Why companies buy back its own shares?

Buyback plan can be an effective way for a business to reinvest, by using excess liquidity to buy back shares of its own stock. This is also an indicator of healthy cash flow position of an organization which helps in increasing shareholder value. Buyback also helps in correcting undervalued stock price in the market. Sometimes due to several reasons stock can be undervalued in the exchanges. Buying back will reduce the supply of shares in the market and prices corrected automatically. Share buyback sends a positive signal as the company is investing in its own shares because it is positive about its own prospects. Company might undertake to buyback to boost financial ratios which are the indicators of its performance. After buy back no of shares decreased and it helps in improvement in Earning per share (EPS).

Under monitored circumstances stock buyback is advantageous for the shareholder, since fewer outstanding shares in the marketplace inevitably gives a greater claim on a company’s earnings. This can be translating into higher individual returns & overall shareholder value.

Buyback trend in Japan:

Corporate governance reforms have created a lot of pressure on the companies to increase shareholders value. One of the most visible effect of this shown in 2016 where companies has announced buyback of around ¥6tn in 2016 which was highest at all time in terms of size and number of companies. Although 2017 was the strongest year, buybacks decline by ¥0.2tn due to Japan’s newly-minted corporate governance propulsion systems.