Tokyo Stock Exchange on Investment Trends, Business Opportunities, and IPO as Exit Strategy for Companies in the Region

Tokyo Stock Exchange on Investment Trends, Business Opportunities, and IPO as Exit Strategy for Companies in the Region

Businesses are still thriving to get back due to the COVID 19 pandemic. Some businesses had been accelerated quickly growing. But have you ever thought about the next steps? With the recently concluded talk of Tokyo Stock Exchange (TSE) at Road to IGNITE 2021 CYBER on Sep 21, 2021, General Manager and Chief Representative of Singapore branch Kazuhiko Yoshimatsu and Account Manager for new listings Kengo Somei discussed great opportunities and business trends in the region. Here are their insightful thoughts.

Increasing Momentum Trend for SEA Venture Investment and Potential Collaboration with Japanese Market

The latest trend in the amount of venture investment in Asian companies, it has been increasing significantly with increasing angel early investment in the world in 2015. In fact, in Southeast Asia, private equity and venture capital funds are still increasing. Mr. Yoshimatsu said, “As much as I recognize these active startup investments are expected to continue backed by abundant "dry powder".

Source: Screen captured from Mr. Yoshimatsu’s presentation deck at Road to IGNITE 2021 CYBER.

Current situation in Japan

The living environment is stable in the major cities in Japan even though it is in a state of emergency due to the COVID 19 pandemic. Positively, with the recent development and vaccinations rolling out, the number of new cases daily is decreasing. (In fact, major cities' state of emergency was removed on Sep 30.)

The pandemic also made structural reforms in the lagging digitalization, work style, and diversification in business practice. The Japanese government also is committed to green recovery and digital transformation in related business products.

As you may know, Japan is the 3rd largest economy in the world with 1,900 trillion-yen household financial assets. However, almost 50% were kept in the bank account. This can be a great opportunity to be well-utilized as there are many Japanese companies who have cutting edge technologies and services that are looking for more corporate partners.

Nowadays, the Japanese government in major cities are trying to internationalize its market and business ecosystem as a global standard or global financial center. Mr. Yoshimatsu also thought that there is also a good improvement in the corporate governance and will be changing towards ESG friendly in the coming decades. As a result of this, Japanese venture capitals and private equities have been aggressively investing in SEA in recent years, and they are also helping leaders and corporate and Asian companies as a bridge between SEA and Japanese markets.

With Japan’s abundant financial assets, there is a need for more innovation for digital transformation, ESG and social restructure where Asian companies can find business opportunities with Japanese corporations and capitalize this opportunity in Japan. He believes that this momentum has been getting bigger especially in recent years.

Overview of the changes in the Japanese market

The stock price and market capitalization in the Tokyo stock market is getting better by 2.8 times and 2.4 times, respectively. The significant change in corporate governance affects figures such as ROE, Dividend, Independent Outside Director, and Currency Exchange Rate.

Source: Screen captured from Mr. Yoshimatsu’s presentation deck at Road to IGNITE 2021 CYBER.

Together with the major global investors such as Fidelity International, Sequoia, and others are in TSE. Most of them are pursuing more investment returns, and they can do that because the changing market has abundant liquidity as differentiation compared with other stock markets.

IPO Trends in TSE

TSE has listed 99 companies in 2020 and the total number of IPO is increasing year per year. Taiwanese Appier Group listed in March 2021 and Singaporean Omni Plus System Limited in June 2021.

Mr. Yoshimatsu also recognizes that they have abundant in their pipeline as potential IPOs now and have confidence in new listings from Asia in the future.

With the new listing of the TSE market, Asian companies can make a good recognition in the Japanese business field. Also, they can get good credibility in the global market because they can get good global listing domination and relation procedures. With the TSE’s help, their business expansion will not only be in Japan but also globally.

IPO scales of TSE market in 2020

As the leading stock exchange in Asia, TSE is continuously moving forward together with the global investors. TSE's goal is to create a market that incentivizes listed companies to sustainable growth, mid to long term corporate value creation, and build an attractive market for both domestic and foreign investors. This structure will be implemented in April 2022.

With these measures, the current listed companies in the TSE market will be recognized in the Prime market, Standard market, and Growth market including the market liquidity, ESG disclosures, and timely disclosure in English. The Mothers market will be transformed into the Growth market.

Mr. Yoshimatsu reaffirms that with these plans, TSE will be more investible, qualified, and visible for global investors, and attract more investors from new domestic and foreign investment owners.

Mothers, Asia’s Leading growth market - opportunity for businesses to fundraise and expand

Source: Screen captured from Mr. Yoshimatsu’s presentation deck at Road to IGNITE 2021 CYBER.

Remarkably, TSE has mothers market network. Mothers, one of the Asia’s leading markets for companies, is the growth market in TSE. This can be a big opportunity for medium to large companies with a median revenue of USD 20M (IPO cases in 2020). TSE’s Account Manager for New Listings Kengo Somei also shared his thoughts in a panel discussion about the opportunities and benefits of doing an IPO. He mentioned that once a company is listed in exchange, there are many ways to raise funds through the capital market where they can enjoy smooth and diversified fundraising with the IPO. The company will also have an access directly from the capital market, not only in terms of fundraising but also in business expansion. If the company plans to expand their business in Japan or in Asia, he recommends that it is a good option to be listed in TSE. It is easier for them to reach their potential customers in Japan and achieve their growth through IPOin TSE.

Here are some of the benefits of being listed in TSE:, (1) the company enjoys high liquidity, (2) the company will have higher valuation, and (3) the company is able to gain the opportunity for growth through IPO even if its small to middle sized company. .

They also mentioned that many active retail investors are investing in Mothers market with a median of 93.6x actual PER and expecting to have higher returns.

To know more about Tokyo Stock Exchange, you may contact ipo@jpx.co.jp or visit their website https://www.jpx.co.jp/.

About the speakers

Mr. Kazuhiko Yoshimatsu joined the Tokyo Stock Exchange (TSE) in 1997 where he handled business development and planning in securities/derivatives trading, listing rule & corporate governance, compliance & market surveillance areas. He worked at the Financial Services Agencies of Japan (JFSA) for 2 years, and experienced corporate strategy, global strategy, media relations & investor relations at the Japan Exchange Group (JPX). He also experienced promotion and policy recommendations of the Japanese capital market at The Consortium for Japan International Asset Management Center Promotion (JIAM) and The Organization of Global Financial City Tokyo (FinCity.Tokyo).

Mr. Kengo Somei joined Tokyo Stock Exchange (TSE) in 2016. He has served in the new listing and derivative market operations. He leads activities to encourage domestic and overseas companies to list in Japan and increase their corporate value in the market. He graduated from Tokyo University of Foreign Studies.