Tokyo Exchange’s Main Board Shrinks for First Time Since ‘66

By Toshiro Hasegawa and Akiko Ikeda

Dec. 9 (Bloomberg) -- The Tokyo Stock Exchange will see the number of companies on its main section fall in 2008 for the first time in four decades, as bankruptcies and buyouts whittled away listings and financial turmoil discouraged new offerings.

The number of companies on the first section of the exchange, representing Japan’s biggest enterprises, totaled 1,729 on Dec. 8, and is set to fall by two more by year’s end. That will leave 22 fewer this year, the first drop since 1966, according to the exchange, when a panic caused by the first bankruptcy of Yamaichi Securities Co. led to a drop in initial public offerings.

“The first section is the uppermost exchange public companies can reach, so the expectation was that the number would just keep increasing,” said Sadakazu Osaki, an economist and head researcher at Nomura Research Institute Ltd., a unit of the nation’s biggest brokerage. “We should not understate how serious the reversal of that trend is.”

The collapse of the U.S. mortgage market caused nearly $1 trillion in credit losses and writedowns at financial companies, setting off the first simultaneous recession in Japan, the U.S. and Europe in the post-World War II era. About $30 trillion has been wiped off world equity markets in the past 12 months and the Topix index, which tracks Tokyo’s first section shares, has plunged 45 percent in 2008, set for its worst year on record.

Even during Japan’s so-called “lost decade,” after its bubble economy burst in the early 1990s, first-section shares didn’t decrease. Except for 2002, every year since 2000 saw double-digit growth in first-section companies.

Second Section

The number of companies ascending to the Tokyo bourse’s first section from the second section fell to eight this year from 32 a year ago. Second section companies are eligible to move up if they have at least 50 billion yen ($538.5 million) in market value and 2,200 shareholders.

“Some companies may have prioritized strengthening their internal structures rather than trying to list on the first section,” Yasuyuki Konuma, director of the listing department at Tokyo Stock Exchange Inc., said in an interview. “I think companies still have strong enthusiasm for going public based on the participation we’ve seen at IPO seminars.”

Bankruptcies among all listed Japanese companies this year hit a post-war high, according to research firm Teikoku Databank Ltd. Seven of the 31 failures were on the Tokyo bourse’s first section, including developer Urban Corp., which was Japan’s biggest bankruptcy in six years. Just three first section companies went bust last year.

Listing Criteria

“It’s a problem that Japan’s biggest and most prestigious market shrank because of bankruptcies,” said Osaki. “The exchange should tighten regulations on listing criteria.”

Total delistings on the first section will amount to 49 this year, eclipsing last year’s tally of 43 and a fourth-straight annual increase. Shares dropped off the exchange due to bankruptcies, takeovers from parent companies and management buyouts. Meanwhile, IPOs in Japan fell to a 16-year low, according to Ichiyoshi Securities Co.

Aucnet Inc., which operates auctions for used cars and motorcycles, had been listed on Tokyo’s first section until management bought out the company and delisted it.

“The prestige and brand-image benefits of the listing just don’t outweigh the costs,” Aucnet president Kiyotaka Fujisaki said in an interview.

To contact the reporters on the story: Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net; Akiko Ikeda in Tokyo at iakiko@bloomberg.net.