Excess of cross shareholdings Asanuma holds
We cannot overlook a company holding cross shareholdings from the viewpoint of an equity investor. Business relationship is to be obtained through competences such as construction technique / service, not through holding cross shareholdings. For the purpose of improving capital efficiency, it is highly welcomed that Asanuma sells its cross shareholdings and distribute the proceeds to shareholders.
The amount of cross shareholdings Asanuma holds accounts for 42.8% of its market capitalisation. It is abnormal that almost half of the market capitalisation is occupied by cross shareholdings (market capitalisation was as of the end of March 2019).
Asanuma states the policy of the holding and reduction of cross-shareholdings in the Corporate Governance Report as followings.
“Asanuma would reduce cross shareholdings when the benefits from them become lower than its cost of capital.”
According to YUHO (Japanese annual report) reported on 28th June 2018, the reasons for cross shareholdings are described only as “strengthening of business relationship”. This is no explanation and it is hard to judge whether the benefits exceed the cost of capital. And we cannot understand why strengthening of business relationship leads to increase of shareholders’ value.