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Issued: April 17, 2000
Nasdaq-Japan chief sees global opportunities ahead
TERUHIKO IKEGAMI and MAKOTO SATO
Staff writers
Tatsuyuki Saeki
Nasdaq-Japan, a market for start-up companies to be launched in June, offers more globalized trading opportunities than Mothers and other markets in Japan, said Tatsuyuki Saeki, president of Nasdaq Japan Inc. But in an interview with The Nikkei Weekly, he also said that the new market will face some difficulties, like trying to keep dirty money from infiltrating shares of listed companies.
Q: How will Nasdaq-Japan be different from the two existing markets for venture start-ups - Mothers and the over-the-counter market?
A: We are not concerned about possible competition with the two markets at all. Nasdaq-Japan's character and its trading scale are completely different from those of Japan's existing securities markets such as Mothers and the OTC, and it is nonsense to compare us with those two markets.
Our biggest feature is that like the Nasdaq Stock Market in the U.S., we have a global market. We will be linked under the same rules with Nasdaq in the U.S. and the planned Nasdaq Europe, and we can attract investors from around the world. Cisco Systems KK and many other Japanese units of U.S. companies listed on Nasdaq plan to list on Nasdaq-Japan. This will add a strong international flavor to our market. My mission (as president of Nasdaq-Japan) is to raise its status to the level equivalent to the Tokyo Stock Exchange and New York Stock Exchange.
Q: But your criteria for listing and delisting are not exactly the same as the Nasdaq in the U.S., are they?
A: We are considering characteristics peculiar to Japan, but at least 90% of the listing criteria are the same as in the U.S. We will create and offer an environment for Japanese companies listed on our market to be listed on the U.S. Nasdaq as well.
Japanese business managers have increasingly come to recognize that Nasdaq-Japan will be a global market, and we have seen a sharp increase in inquiries from start-ups.
Q: Do you have any practical plan to prevent listed companies or candidates from being controlled by organized-crime groups?
A: It is very tough task. We cooperate with the Osaka Securities Exchange to screen such underground companies by setting up special teams to tackle this issue. If we fail to detect such problems prior to the actual listing, our market may lose its credibility. But I am not 100% sure we can perfectly forestall the listing of such companies. It is sometimes a case that a venture-capital investor in a company planning to list its stock is influenced by organized-crime groups.
Q: Do you expect any change in your partnership with the OSE after the new chairman, Goro Tatsumi, president of Kosei Securities Co., starts serving in June?
A: From our point of view, the answer is no. I have known Tatsumi for more than 20 years, and he has been closely in touch with the OSE's plan to cooperate with Nasdaq. For the OSE, having a chairman from the private sector rather than a former Finance Ministry bureaucrat is better for making quick decisions.
Issued: April 17, 2000
High-tech shakeout
As volatility in the technology sector continues, start-ups find the days of easy money are over, while police worry about organized-crime involvement
MINORU NAITO
Staff writer
Softbank's Son, at left in the upper photo, and Hikari Tsushin's Shigeta, lower left, suffered sharp stock price drops. Lower right, would-be entrepreneurs gather recently in Tokyo.
Volatility has ended the euphoria for Japan's technology sector and raised questions about the viability of the nation's nascent marketplace for start-up companies. The battered tech stocks have left entrepreneurs bewildered and exacerbated the riskiness of investing in start-ups. The market gyrations even prompted the police to publicly worry about one of Japan's touchiest subjects - money from organized-crime groups infiltrating the stock market. Last week, taking a cue from the police, the Tokyo Stock Exchange announced a new rule: Before companies are listed, they must submit papers verifying they have no link with gangsters.
It may be very tough to ferret out yakuza, or Japanese mafia, influence in the market, says Mitsuru Yoshikawa, director of the securities regulation research division at Daiwa Institute of Research. For one thing, he says, the police are unlikely to disclose their information on the yakuza, such as the names of their companies. "I presume the practice can only be possible by the exchange asking the police to check the list of candidate companies," Yoshikawa said.
Some analysts say the high-tech shakeout is likely to remove distortions that have tainted the venture-capital market, and that the reality check is healthy.
"From now on venture capitalists will be more realistic in deciding where to invest their money. In the end, the current stock-price decline will help normalize the market," said Taku Kumazawa, Internet analyst for Wit Capital Japan Inc.
The same goes for individual investors. "People used to have a rosy dream of information-technology shares. Now they are getting more realistic," said Tatsuya Iwamura, an analyst for Marusan Securities Co.
Susumu Fujita knows all too well how hellish it's been lately. He's the 26-year-old president and chief executive officer of Cyber Agent Ltd., an Internet advertising agency that went public last month. Sitting in his 21st floor executive suite in Tokyo's trendy Shibuya district, Fujita recalled how tough it was to get listed on the Tokyo Stock Exchange's Mothers market, a 5-month-old equities market for start-up firms.
"It took so much energy to get our whole company prepared for going public and at the same time maintain the high-level energy needed to run our new businesses," said Fujita. "Moreover, some market insiders seemed to have a hard time understanding our business, which was so new for them. Also, my age did not help much in getting them to trust me."
Cyber Agent unveiled its initial public offering on March 24 at 15.2 million yen ($140,000) a share. It closed that day at 15.2 million yen. The company managed to raise more than 20 billion yen, which it says will help finance an expansion to South Korea and Spain. Last week, Cyber Agent closed at 8.01 million yen.
Fujita worries investors will avoid buying into the sector because of the negative sentiment mauling IT-related start-ups.
"There's no stability in any shares on the Mothers exchange. Right now, if one goes down, the others follow, as we all are treated in a bundle," said Fujita. He's anxious that investors won't even bother to look closely at the company's business model, which he says is "a lot different from the others."
Of course, Cyber Agent is not alone.
-- Internet Research Institute Inc., whose technology products support online businesses, has been on a roller coaster too. It went public in December, and a surge of buy orders pushed the stock price up to 77.41 million yen on Jan. 20. But last week it closed at 10.59 million yen, down 86.3%.
-- For Livin' on the Edge Co., another Internet-related start-up, it's been even worse. The company's IPO price on April 6 was 6 million yen, but it closed the day at an ask-only price of 4.5 million yen. Last week, the shares had dropped to 4.41 million yen.
Traders blame the volatility of stocks on the Mothers exchange on the troubles plaguing Softbank Corp. and Hikari Tsushin Inc., once the darlings of Japan's Internet plays on the Tokyo exchange.
"Both Softbank and Hikari Tsushin had pulled up all of Japan's IT shares. Lately however, many investors began to realize that the businesses of these two firms are rather opaque," said Toshio Tahara, manager of the fund management department at Sumisei Global Investment Trust Management Co.
On April 6, Softbank said fiscal 1999 sales had slipped 42% year on year, and net profit was down by 91%. Softbank shares slumped to 61,300 yen at last week's close, down 66.3% in the last two months.
For Hikari Tsushin, Japan's largest franchiser of mobile-phone shops, which saw its share price rocket to a record high of 241,000 yen on Feb. 15, it's even worse.
No one seems to want to buy Hikari Tsushin shares. Sellers have outnumbered potential buyers on the Tokyo Stock Exchange every trading day since March 31. Last week, the shares closed at an asking price of 33,800 yen.
"Such volatility has definitely colored the sentiment for all IT shares in Japan," said Tahara of Sumisei Global.
One analyst said: "What is occurring is a correction in the high valuation of the IT firms, and it's likely to continue."
This week the IT investment spree gets a new test. Rakuten Inc., the operator of Japan's largest Internet-based mall, has scheduled its IPO in the over-the-counter market. On April 19 Rakuten hopes to raise 49.5 billion yen by selling 1,500 shares at 33 million yen a share. But the sharp plummet in New York's key stock markets on April 14 cast a pall over Rakuten's launch.
Some industry insiders warn Rakuten's IPO price is just part of the Net bubble that some Japanese investors keep chasing. Investors ought to be more selective, studying IT companies' business models and their growth potential, they say.
In the next three years, investors must be more careful about where they put their money - no matter where the firms are listed, said Akira Ishihara, manager of industry and corporate research at Shinko Securities Co.
With the market so volatile, wild, damaging rumors can easily take root. Last month, rumors circulated that Hikari Tsushin President Yasumitsu Shigeta was going to be arrested or had died. The stock plunged, even after Shigeta denied the rumors.
The volatility also makes the shares vulnerable to hucksters, some insiders say. The swindlers peddle fake documents suggesting the investments in certain companies can only go up. Last November, Tokyo's Metropolitan Police Department warned securities dealers about such troubles. In an unusual request, the police asked the brokers to prevent yakuza from infiltrating the stock market.
The police suggested several ways that organized crime could move into the securities market. Among them:
-- Creating a "front company" controlled, owned or under the influence of unlawful forces, and then listing the company's stock to earn capital gains.
-- Forcefully taking over a venture company.
-- Persuading investors through threats or other unsavory means to buy nonlisted stocks of a phony front company.
After the Metropolitan Police Department asked the TSE to consider ways to ex-clude firms with a relationship with underworld groups, the exchange issued its new requirement.
All companies wanting to list on the TSE will now have to submit papers to verify there is no interaction with gang groups, including no gangster-related board members, major shareholders nor business clients.
Hiroshi Shirahashi, the TSE's listing department manager, says the police request is sensible. "The problem is how to exercise the inspection," said Shirahashi.
All of these problems underscore problems peculiar to Japan's equity markets. Some analysts even suspect companies tainted by underworld money have already been listed on some exchanges in Japan. They note that compared with the U.S., the Japanese IPO market is immature, and that's one reason the ground rules and infrastructure for going public is so completely different.
Japan lacks venture capitalists who select investment targets based on the business prospects of the company and then help steer the start-ups' management, said Takao Saga, senior economist of Japan Securities Research Institute.
"Japan also lacks law firms that can check the documents necessary for the listing, as well as checking corporate governance. We also need 'angels' - investors who contribute their personal assets along with their management skills," Saga said. "Involving these venture capitalists, angels and law firms from the early stages could prevent companies having a relationship with the mafia to list their stocks."
Copyright 2000 Nihon Keizai Shimbun, Inc., all rights reserved.
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