Shrinking market values put firms at risk of delisting

As share prices head south, some companies are doing all they can to avoid being dealt a stock market red card that could lead to delisting or demotion.

Prolonged market woes from the U.S. subprime debacle have shrunk the market capitalizations of many listed companies, with some teetering on or below their listing threshold.

If a company's aggregate market value, or its stock price multiplied by the number of outstanding shares, falls below the listing requirement for a certain period, the firm may be delisted.

Once ejected, a business would find it tough to raise funds because of its loss of creditworthiness.

Women's apparel retailer Suzutan Co. is one company trying to avoid being demoted from the first to second section of the Tokyo and Nagoya stock exchanges.

In announcing its financial results for the year ended in February, President Fumio Kobayashi on Thursday stressed the company's resolve to keep its seat on the First Section, considered a league of leading corporations.

"We will build a structure to generate steady profits so we can remain in the First Section at all costs," he told a news conference.

Two days earlier, the Tokyo and Nagoya bourses flashed his company a yellow card of sorts.

Both exchanges warned the Nagoya-based chain it could be dropped to the Second Section because its average market value in March fell below the First Section standard of 2 billion yen.

In response, Suzutan is compiling a business improvement plan to present to the two stock markets. The plan is expected to include a review of new store openings and an expansion of online sales. Suzutan hopes to rise above the capitalization threshold within nine months.

Similarly, Tofuku Flour Mills Co. is struggling to return to the black by the end of September, aiming to jack up its stock price.

Tofuku saw its market capitalization drop below the TSE's Second Section criterion of 1 billion yen in December.

The Fukuoka-based flour milling company plans to improve product quality, increase sales channels and reduce distribution costs to lift its share price and surpass the market threshold.

According to TSE rules, a company whose total market value falls below 1 billion yen must enter a three-month grace period.

If it hands in a business improvement plan, the period can be extended to nine months.

If the total capitalization does not rise back above the threshold within that time, it will be delisted.

For the TSE's Mothers market for start-ups, the listing requirement is 500 million yen.

For First Section companies, the minimum to maintain a seat is 2 billion yen. If it falls below that, a company can be told to move down to the Second Section.

Four TSE companies are now in grace periods; none was a year ago.

The situation is tougher on the Jasdaq market for start-ups, hit hard after the Livedoor financial scandal rocked the market in January 2006 and scared off individual investors.

Seven companies have failed to meet its requirement of 500 million yen, compared with none in April 2007.

Fread Co., a fixed-line telephone subscription agency, saw its market capitalization fall below the 500 million yen mark in September.

It handed in a streamlining plan in December, and its grace period was extended to nine months.

The Nagoya-based company avoided delisting after its share price rose and cleared the 500 million yen level in January. Its success was brief, however.

In February, it fell below the mark again. The company has had difficulty compiling a second business improvement plan quickly.

No immediate turnaround in market share prices is expected.

In the wake of the subprime crisis, the Nikkei stock index shed almost 2,000 points from the start of this year, ending Monday at 13,450.23.

Fears of a U.S. economic slowdown are persistent, and investor sentiment is even chillier because of the delay in appointing a new Bank of Japan governor.

Market traders don't expect to see a full recovery until 2009 or later.

"Even if we stabilize the management with a capital increase, the stock price will fall soon if our performance remains poor," said an official at one company caught in a grace period. "All we can do is steadily move ahead."(IHT/Asahi: April 8,2008)