LOS ANGELES, Calif. & TOKYO, Japan – Dalton Investments issued the following letter to the directors of portfolio companies urging them to implement or accelerate share buybacks programs in order to take advantage of the recent historic decline in Japanese equites.
Dear Board of Directors,
Thank you for your unwavering dedication to enhancing our corporate value and for consistently offering generous opportunities for dialogue with shareholders.
As you see, we are currently experiencing a rapid appreciation of the yen and a significant drop in stock prices, triggered by following the recent monetary policy changes by the Bank of Japan and the release of U.S. employment statistics. Today, we would like to share with you our observations on the current situation, outline our policies, and present a few items for your consideration.
Despite the unusual magnitude of this market plunge, we see it not as a setback, but rather an excellent opportunity for you to accelerate your efforts to enhance your corporate value. We are writing to urge you to take prompt action to seize this opportunity. We kindly request that your Board of Directors consider and make decisions regarding the points outlined in this letter.
- Background of this confusion
The August 2 U.S. employment data, indicating that the economy had entered a recessionary phase, contributed significantly to the global stock market correction, including in Japan. Additionally, the U.S. economic correction exerted pressure on Japanese corporate earnings and stocks through lower interest rates in the U.S. narrowing of the interest rate differential between Japan and the U.S., and the appreciation of the yen. Therefore, the particularly large impact on the Japanese stock market is explainable from a fundamental perspective. The fact that last week’s decline in the Japanese market was led by large shareholders also supports the fundamental analysis.
However, the further plunge on Monday was a major departure from the aforementioned fundamental factors. The selloff extended broadly to small and mid-cap stocks, including companies that should have benefited from the strong yen. This situation is indicative of numerous margin calls and semi-mandatory position unwinds due to mounting losses in various market transactions. It appears that many leveraged trades had accumulated over the past week, regardless of the type of entity or transaction format. These included carry trades based on the assumption of continued low yen interest rates, margin buying by retail investors, and institutional investors shorting volatility. We understand that the unwinding of these leveraged transactions is occurring in response to the recent monetary policy and employment data releases.
In retrospect, the low-risk, high-return market environment of the past few years has been a comfortable yet complacent environment for many market participants. This environment has encouraged the use of leverage, resulting in a market structure that is vulnerable to sudden changes.
- Our policy
Although our portfolio has been significantly impacted in terms of market value, we do not need to “unwind” our positions as others have. We are proud to be long-term investors who share the same time horizon as you and your management, and we do not use leverage in any of our investments.
Furthermore, all of our investees possess strong business competitiveness, excellent management capabilities, and solid financial foundations that are resilient to changes in the business environment, such as yen appreciation and rising interest rates. We do not believe that a major review of our investment policy is necessary.
Thankfully, our clients also understand our philosophy of long-term investment. With their backing, we view market corrections that extend beyond fundamental factors, such as the current one, as opportunities to further build up our investments.
- Proposal
As you might easily guess from our many years of investment and dialogue, we strongly urge you to consider implementing a share buyback. For companies that have already established and are operating a share buyback program, we recommend taking full advantage of this unique opportunity to accelerate corporate value enhancement by expanding your share buyback program.
In principle, we believe that profits generated from business operations should ideally be reinvested into the business to foster future profit growth, and that the best way to return profits to shareholders during normal times is by consistently increasing dividends. However, the current market turmoil has caused your company’s stock price to become even more undervalued. Under these circumstances, we propose a share buyback that would (1) have a positive signaling effect on the market, (2) increase corporate value by improving earnings per share, and (3) reduce the future dividend burden by decreasing the total number of shares outstanding.
We are not proposing a specific amount or number of shares at this time. In today’s environment, it is crucial to take immediate action, even if it is a small amount, to demonstrate the confidence of the board in your company’s business, finances, and stock price level. Such action will offer immeasurable peace of mind to shareholders and lay the foundation for confidence in your company’s management for many years to come.
We look forward to discussing this letter with you at the next Board of Directors meeting and anticipate your favorable response. If you have any questions, please feel free to contact any member of the Dalton Advisory KK.
Please note that the below is a Japanese translation of the above letter that Dalton Investments sent in English, provided as a courtesy. In the event of any inconsistency between the English language version and the Japanese language version, the meaning of the English language version shall prevail.
取締役会 御中
親愛なる取締役の皆様、日頃より不断の企業価値向上への取り組みを頂き、また株主に対して惜しみない対話の機会を賜り、誠にありがとうございます。
ご高覧の通り、直近の日銀による金融政策及び米国雇用統計の発表を機に、金融市場は円高と株価急落の同時進行の最中にあります。本日は現況についての私共の所見と方針、かつご経営者の皆様にご検討いただきたい事項をお伝えします。今回の市場の急落は稀にみる規模ですが、これは皆様にとってはピンチではなく、むしろ企業価値向上の取り組みを加速する絶好の好機と私共は考えます。投資先の皆様には好機を逃すことなく迅速な行動を採って頂きたく、本レターをお送りいたします。本稿について取締役会で検討・意思決定いただけますようお願い申し上げます。
- 今回の混乱の背景について
景気後退局面入りを示唆した8月2日の米国雇用統計そのものは日本に限らず世界株式市場の調整要因でしたが、加えて米国の景気調整は同国の金利低下→日米間の金利差縮小→円高という経路でも日本企業の業績や株価にプレッシャーを与えます。そのため、とりわけ日本株式市場の影響が大きいこともファンダメンタルズの観点から説明がつくものでした。先週の日本市場の株価下落が大型株主導であったことともファンダメンタルズ分析を支持するものです。
しかし月曜日の更なる急落は上記ファンダメンタルズ要因を大きく逸脱したものであり、セルオフの対象も広く中小型株や円高の恩恵を受けるはずの企業にまで幅広く波及しました。これは市場の様々な取引において損失の拡大に伴うマージンコールと半強制的なポジション解消が大量発生した際に特徴的な状況です。円の低金利継続を前提としたキャリートレード、リテール投資家による信用買い、ボラティリティをショートする機関投資家など、主体や取引形態は異なれど多くのレバレッジ取引が先週時点で積みあがっており、金融政策や雇用統計の発表をきっかけにその巻き戻しが起こっている状況と推察します。
振り返ってみれば過去数年の低リスク・高リターンな市場環境は多くの市場参加者にとって心地よいぬるま湯であり、レバレッジを活用したリターン拡大を誘引し、結果として市場の変化に対して脆弱な構造になってしまった様です。
- 私共の方針について
この様な環境で私共のポートフォリオも時価評価額という点では相当の影響をうけているものの、上記に記載したような「ポジション解消」の必要に迫られてはおりません。私共はご経営者の皆様と時間軸を共有する長期投資家であると自負しており、一切投資に（ポジション解消の原因である）レバレッジを用いておりません。
加えて私共の投資先はいずれも円高や金利上昇といった環境変化に対して耐性のある強い事業競争力と経営力、そして強固な財務基盤を有しておられます。改めて大きな運用方針の見直しは必要ないと考えています。
また、ありがたいことに私共の顧客も長期投資の哲学をご理解いただいております。このような多くの顧客に支えられ、むしろ現在のようなファンダメンタルズ要因を超えた市場調整において投資を積み増す機会を伺っております。
- ご提案
長年の投資と対話から私共の考えは容易に想像されるかもしれませんが、私共が取締役の皆様に是非ご検討いただきたいのは自己株買いです。すでに自社株買いの枠を確保し運用されている会社に置かれましても、その枠を拡大することによって、企業価値向上を加速する千載一遇の機会を存分に生かしていただきたく存じます。
私共は原則として、事業から生み出された利益は将来の更なる利益成長を生み出す事業への再投資に充てられる事が最も望ましく、また平時における株主還元は継続的な増配が王道と考えます。しかしながら、足元の市場の混乱により、貴社株価は一層割安に評価されております。この様な状況においては（１）市場に対するシグナル効果を持ち、（２）一株当たり利益改善を通じた企業価値向上効果を持ち、（３）発行済株式総数の減少を通じて将来的な配当負担を減らせる、自己株買いをご提案したいと思います。
今回私共から具体的な金額・株数についての提案は致しません。例え少額であっても速やかにご実施頂く事が今日のような環境では重要であり、それによって取締役の皆様の貴社事業・財務・株価水準に対する自信を発信する事ができます。その様なアクションが株主の皆様に与える安心は計り知れず、今後長期にわたって貴社ご経営への信頼の礎となるでしょう。
こちらのレターを次回の取締役会でご議論頂き、ご決定いただける事を期待しております。
ご不明な点があれば何なりとダルトン・アドバイザリー株式会社のメンバーにお問い合わせください。
IMPORTANT INFORMATION
This letter has been prepared by Dalton Investments and its affiliates (collectively, “Dalton”) for the benefit and use of the original recipients. It does not constitute, and should not be construed as, an offer or solicitation to enter into any transaction regarding any financial instrument, nor should it form the basis of or be relied on in connection with any such transaction. This letter does not constitute, and should not be construed as, tax, legal, regulatory, accountancy or other specialist or technical advice, or investment advice or personal recommendations, any trading strategy or advice (from an investment perspective) to any person on the suitability of any transaction.
The information in this letter is based on information that Dalton considers reliable, but which Dalton did not verify any of the information. No representation or warranty is made as to, nor should reliance be placed on, any of that information contained herein being accurate or complete. Neither Dalton nor any of Dalton’s directors, officers or employees accepts any responsibility or liability for any losses or damages that may result from the lack of accuracy or incompleteness of this information. Such persons also do not accept any responsibility or liability for assumptions on which any statements, views, valuations or opinions expressed by Dalton in this letter may be based.
This letter speaks of its date and opinions and views expressed are Dalton’s opinions and views as of such date only. Dalton assumes no obligation to notify or inform any party of any developments or changes occurring after the date of this document that might render its contents untrue or inaccurate in whole or in part.
Any possible transaction or investment referred to herein may involve significant risk. This document has been prepared without regard to the individual circumstances and objectives of persons other than the original recipients who receive it. Other recipients should, without relying on this document, make their own independent decisions regarding to any possible transaction or investment and, if necessary, seek professional advice.
Dalton accepts no liability whatsoever for any reproduction or redistribution, in whole or in part, of this document, by any person other than Dalton.
The distribution of this document in certain jurisdictions may be restricted by law, and recipients into whose possession this comes should inform themselves about, and observe, any such restrictions.
免 責 事 項
本資料は情報提供のみを目的としたものであり、特定の金融商品への投資の勧誘や売買、ある いはその売買の適合性についての助言を行うことを目的としたものではありません。
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本資料に記載する事項につき、予告なしに内容が変更または廃止される場合があります。予め ご了承ください。
本資料は、各種法律により制限されている場合がありますので、正確な情報や詳しい資料の配 布を希望される場合には、ダルトンにお問い合わせをお願いします。