AVI have been shareholders in Teikoku since March 2018. Since then, we have engaged with the company on a range of issues, in particular, those relating to the Teikoku’s inefficient balance sheet. However, despite improving corporate governance across Japan and widespread acceptance that hoarding excess cash and maintaining “strategic securities” portfolios erodes corporate value, Teikoku has failed to make adequate improvements.
Teikoku’s Board, with the implicit support of Teikoku’s “group shareholders”, have created a value-destructive balance sheet in which 70% of total assets consist of cash and so-called “strategic securities”. Hulic, a real estate business completely unrelated to Teikoku’s core business, alone accounts for over 30% of Teikoku’s total assets.
Over the past two years, other shareholders have submitted proposals targeting Teikoku’s inefficient balance sheet. Despite being in shareholders’ best interests, the proposals failed to receive sufficient support because Teikoku’s “Group Shareholders” blindly voted with management. It is time to hold “Group Shareholders” accountable for their voting. We call on Teikoku’s “Group Shareholders” to stop voting passively with management and vote in the interests of all shareholders and best governance practices.
AVI’s shareholder proposals for a ¥76/share dividend and 3% share buyback are intentionally modest. The proposals are meant to be a first step towards Teikoku’s balance sheet reform. If Teikoku’s “Group Shareholders” acknowledge the need to improve Teikoku’s balance sheet efficiency in the interests of all shareholders, AVI is confident that its proposals will receive majority support.
CEO & CIO
29th January 2020
Founded in London in 1985, AVI has a long history of investing in Japan. Over the past few years we have observed the heightening interest in Japan driven by corporate governance reforms. What we have seen convinces us that profound change is underway, and we launched a dedicated fund, AVI Japan Opportunities Trust (‘AJOT’), to target the plentiful opportunities the reforms will bring. Across AJOT and AVI Global Opportunities Trust (‘AGT’), AVI has ¥55bn invested in Japan.
We always take a long-term view with our investments, seeking high-quality companies that the market misunderstands and undervalues. We work with company management and boards to improve long-term corporate value.
Also available in: