The Economist - UK (2022-04-09)

58 Business TheEconomistApril9th 2022

BusinessinChina

Double-entry

book-keeping

I

nmostcountriesthestatehasnobusi­

ness inmost commercialsecrets. The

Chineseauthoritieshavelongtakena dif­

ferentview,consideringthereviewbyfor­

eignregulatorsofaccountingdocuments

drawnupinChinaforChinesecompanies

listedoutsidethemainlandasaninfringe­

mentonsovereignty,potentiallypunisha­

blebydeath.Thegovernmentsoftenedits

stance in2020, whensome suchdocu­

mentsweresharedwitha HongKongac­

countingbody.Nowit seemsreadytoopen

the books to American regulators, who

havebeenkeenfora peekformorethana

decade,inordertoensurethesoundness

ofChinesesecuritieslistedinNewYork.

OnApril2ndtheChinaSecuritiesRegu­

latoryCommission(csrc) indicatedthatit

willallow AmericaninspectionsofChi­

neseaccountingpapers.The concession

fromtheChinesegovernmentisa break­

throughinoneofthecostliestregulatory

spatsincapital­marketshistory.

Withoutthereviews,anAmericanlaw

from 2020 couldeventuallyforce nearly

$1trn­worth of Chinese stocks off New

York’sexchanges.Althoughthiswouldnot

happenuntil 2023 attheearliest,themere

prospecthasexacerbateda sharpsell­offin

Chinesetechnologystocksabroad,already

batteredbya broadclampdownonthetech

industryathome.ThenasdaqGoldenDra­

gonChina Index, which tracks Chinese

firmslistedinNewYork,isdownbytwo­

thirdsfromitspeakinFebruary2021.The

publicationlastmonthofa listof 11 candi­

datesfordelistingbyAmerica’sSecurities

andExchangeCommission(sec) shaved

another$260bn fromthecollectivevalue

ofAmerican­listedChinesestocks.

S HANGHAI

Chineseregulatorswarmto

Americanlistings

Cross-border trades

Stockmarket indices, Jan 1st 2020=100, $ terms

Sources:Bloomberg;RefinitivDatastream

250

200

150

100

50

2020 21 22

NASDAQ

composite

Hang Seng Tech

NASDAQ Golden

Dragon China

Toshiba

In searchofan

ending

T

oshibawasoncesynonymouswithJa­

pan’sindustrialmight.Oflatethecon­

glomerate, which has made everything

frommemorycardsto nuclearreactors,

hasbecomeabywordfordrama.Japan’s

businesspresswritesof“ToshibaTheatre”,

whichbeganwithaccountingfrauda de­

cadeagoandhascontinuedtothepresent

day in a series of “slapstick” struggles

betweenmanagement andshareholders.

Toshiba’ssharepricehasunderperformed

domesticandforeignrivals,aswellasthe

broaderJapanesestockmarket(seechart).

Thelatestplottwistcomesamidtalkof

a buy­outledbyBainCapital,anAmerican

private­equity group. This raised hopes

amonginvestorsforsomesortofresolu­

tiontothesaga.Toshiba’smarketvaluehas

risenbya quarterinthepastmonth.

TheopeningactintheToshibaspecta­

clewastragic.Thefirmcookeditsbooksto

inflateprofitsby$1.2bnbetween 2007 and

2014.Implicatedexecutivesboweddeeply

inapology.Anewcropofleadershadto

apologiseagaintwoyearslaterwhena big

betonWestinghouse,anAmerican nuc­

lear­powercompany,wentsour.Toremain

solvent,Toshibasolditsprizedmemory­

chip unitto a Bain­ledconsortiumand

issueda blockofnewshares.Foreignactiv­

istinvestors spiedopportunity.Effissimo

CapitalManagement(ecm), a Singaporean

assetmanager,amasseda stakeofnearly

10%,making itthesingle largestshare­

holderinthecompany.

Thatsetthestagefora protractedsec­

ond actoftragicomedy.Asshareholders

pushedforbetterreturnsandmoretran­

sparency, Toshiba executives squirmed.

SomecolludedwiththeJapanesegovern­

ment to stop theactivists fromgetting

seatsontheboardin2020,accordingtoan

independentinquiry.A yearagoa surprise

bidtotakethecompanyprivatecollapsed,

bringing the ceo, Kurumatani Nobuaki,

downwithit.TsunakawaSatoshi,a former

bosswhoreturnedtothejobafterMrKuru­

matani’sousting,arguedinsteadthatthe

groupshouldbesplitup.

Thisplan,too,faltered,andonMarch

1stMrTsunakawafellonhissword.Atan

extraordinarygeneralmeetingthreeweeks

later, shareholders killed the manage­

ment’sproposalfora splitintotwobusi­

nesses, one focused onelectronics, the

otheroninfrastructure.Atthesametime,

theyalsorebuffedcallsfromToshiba’ssec­

ond­largestinvestorforthegrouptocourt

buy­outoffers.

Theimpassesetthestageforactthree.

On March 31st ecm announced it had

signed anagreement tosell itsstaketo

Bainif regulatorsgavethenodtotheAmer­

icanfirm’sbid.A dealwouldbehefty.Tosh­

iba’smarketvalueis$17.5bn;apremium

couldadda fewbillion,puttingitinstrik­

ingdistanceofthetoptenleveragedbuy­

outs in history. Given Toshiba’s history

(whichstretchesbackto1875)andpromi­

nence(itemploysnearly120,000people),

thetransactionwouldalsomarka bigad­

vanceforbothforeigninvestorsandpriv­

ateequityinJapan,whichhasnothistori­

callybeenwelcomingtoeither.

Hurdlesremain.Japaneselawsregulat­

ingforeigninvestmentwereamendedin

2020 to increase oversight ofindustries

importanttonationalsecurity.Toshibahas

interests in several, including nuclear

power,defence,chipsandquantumcom­

puting. Regulators helped scuttleearlier

buy­outbids.Bainappearstohavelearned

fromthoseexperiences,andissaidtobein

discussionswithJapanesefundsandcom­

paniestoforma consortiumthatwouldbe

palatabletothegovernment.But“manyis­

sues”muststillberesolved,Bainacknowl­

edged.Thecurtainisfarfromclosed. n

TOKYO

Foreignprivate-equitybaronscirclea

fadingjewelofcorporateJapan

No standing ovation

Share prices, January 1st 2010=100, $ terms

Source:RefinitivDatastream

400

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100

0

2220181614122010

Toshiba

TOPIX index

MSCI world

industrials index

Hitachi