Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Thematic (Sector/Industry)

After the close on Tuesday April 28, 2015, Toyota <a href="http://www.toyota-global.com/investors/stock_information_ratings/share_2015/pdf/commonstock_20150428_01.pdf" target="_blank">announced</a>&nbsp;the board had resolved to submit to shareholders a resolution to partially amend&nbsp;the company's Articles of Incorporation to allow the company to allow issue a new series of shares, which they have called "Model AA Shares". The announcement noted a first tranche of 500 billion yen, and future tranches.&nbsp;The securities will be unlisted, non-transferable, require buying an embedded put from the company itself, and result in a mini&nbsp;"death spiral" impact on the common shares.&nbsp;My first reaction was "Huh?"After reading all the materials a second, third, and fourth time - in both Japanese and English - given my 15+yrs of looking at the microstructure of Japanese markets, special situations, and unusual security issuances, my reaction has evolved to a more considered, and evolved&nbsp;"Huh?"CONCLUSIONS<ul><li>The explanations do not make a great deal of sense.&nbsp;</li><li>The economics do not make a great deal of sense, nor do they match what should be the desired 'long-term investor' commitment.&nbsp;</li><li>If one looks at the best and highest purpose of such a structure, one must conclude it might be meant for a different purpose than Toyota discloses.</li><li>And if one takes a more skeptical view of Japanese issuance practices, this has to be seen as a slightly bearish development.</li><li>If Toyota is issuing this now as a way to gain acceptance of issuing it to a different group of shareholders than it says, that is bad.</li><li>If Toyota is wasting its time and energy for minimal benefit, that is bad.&nbsp;Toyota does not need to save 34bn yen in dividend payments over 5yrs when they start with 6 trillion yen in cash, and will generate another 10 trillion yen plus in cash over the next 5 years.&nbsp;</li></ul>

After the close on Tuesday April 28, 2015, Toyota announced&nbsp;the board had resolved to submit to shareholders a resolution to partially amend&nbsp;the company's Articles of Incorporation to allow the company to allow issue a new series of shares, which they have called "Model AA Shares". The announcement noted a first tranche of 500 billion yen, and future tranches.&nbsp;The securities will be unlisted, non-transferable, require buying an embedded put from the company itself, and result in a mini&nbsp;"death spiral" impact on the common shares.&nbsp;My first reaction was "Huh?"After reading all the materials a second, third, and fourth time - in both Japanese and English - given my 15+yrs of looking at the microstructure of Japanese markets, special situations, and unusual security issuances, my reaction has evolved to a more considered, and evolved&nbsp;"Huh?"CONCLUSIONSThe explanations do not make a great deal of sense.&nbsp;The economics do not make a great deal of sense, nor do they match what should be the desired 'long-term investor' commitment.&nbsp;If one looks at the best and highest purpose of such a structure, one must conclude it might be meant for a different purpose than Toyota discloses.And if one takes a more skeptical view of Japanese issuance practices, this has to be seen as a slightly bearish development.If Toyota is issuing this now as a way to gain acceptance of issuing it to a different group of shareholders than it says, that is bad.If Toyota is wasting its time and energy for minimal benefit, that is bad.&nbsp;Toyota does not need to save 34bn yen in dividend payments over 5yrs when they start with 6 trillion yen in cash, and will generate another 10 trillion yen plus in cash over the next 5 years.&nbsp;

'Model AA' Shares - Good Governance Gone Bad?

Japan Specialist

Mark Chadwick

<ul>
<li>
OVERSEAS:  WCUP: Argentina/Messi prevail; SPX -2.1%WoW on recession narrative; SPX option expiry exacerbates moves;  Calls for new TESLA CEO; GS to cut 8% of workforce;  Covid spreads in China</li>
<li>
JAPAN:  NKY Futs at -0.9% vs Cash;  Defense Bill Approved - no tax hike till 2024; Lawson's Seijo Ishii IPO postponed; Renesas suspends China ops on Covid; Decarbonization-related investments unabated</li>
<li>
DAILY NUGGET:  We look a the another attempt of the Japanese government at regional revitalization. Smells of pork barrel spending to us. </li>
</ul>



OVERSEAS:  WCUP: Argentina/Messi prevail; SPX -2.1%WoW on recession narrative; SPX option expiry exacerbates moves;  Calls for new TESLA CEO; GS to cut 8% of workforce;  Covid spreads in China

JAPAN:  NKY Futs at -0.9% vs Cash;  Defense Bill Approved - no tax hike till 2024; Lawson's Seijo Ishii IPO postponed; Renesas suspends China ops on Covid; Decarbonization-related investments unabated

DAILY NUGGET:  We look a the another attempt of the Japanese government at regional revitalization. Smells of pork barrel spending to us. 


Good Morning Japan |Argentina and Messi Triumph! Recession Fears Persist - No Break for Equities

Japan

TOYOTA INDUSTRIES CORPORATION, a member of the Toyota Motor Group, assembles motor vehicles and manufactures automotive parts such as engines and air conditioner compressors.  The Company also produces industrial equipment and textile machinery as well as electronic devices such as computer modems and power inverters.

BRIDGESTONE CORPORATION designs, produces, and sells automobile tires. The Company also produces and markets scales to weigh racing cars and jumbo aircrafts and sporting goods including golf equipment, tennis rackets, and bicycles.  Bridgestone operates its businesses worldwide.

Sumitomo Electric Industries, Ltd. manufactures electric wires, cables, and their related equipment.  The Company's products include optical fibers, wire harnesses, antennas for broadcasting stations, and electric monitoring systems.  Sumitomo Electric also produces disc brakes and antilock braking systems for automobiles and printed circuit board.

NGK SPARK PLUG Co., Ltd. manufactures and markets spark plugs for automobiles, motorcycles, agricultural machinery, ships, and aircrafts.  The Company also makes ceramic products for semiconductor and telecommunication equipment. NGK Spark Plug markets its products under the NGK and NTK brand names and has subsidiaries in the US, Canada, France, Germany, and South Korea.

Aisin Corporation manufactures and distributes motor vehicle parts. The Company produces drive train, transmissions, clutches, disc brakes, anti-skid brake system, suspensions, oil pumps, power windows, power door locks, and more. Aisin operates sales and production subsidiaries worldwide.

KOITO MANUFACTURING CO., LTD. produces lighting equipments for automobiles such as head and tail lights, rear combination lamps, and fog lamps.  The Company has  its production facilities in Japan, the US, the UK, Czech, China, Thailand, Taiwan, and India.  Koito Manufacturing also manufactures electronics parts for aircrafts including lighting equipments and oil pressure gauges.

Stanley Electric Co., Ltd. manufactures lighting equipment including head lights, HID (High Intensity Discharge) assist lamps, and rear combination lamps for automobiles.  The Company also produces LCD (Liquid Cristal Display) and LED (Light Emitted Diode) lamps for communication equipment, office automation equipment, and information displays.

NIFCO INC. manufactures synthetic resinous fasteners and plastic components for automobiles and home electronic appliances.  The Company has its subsidiaries in Korea, Hong Kong, Australia, Malaysia, Singapore, and the US.

NOK CORPORATION manufactures oil seals and industrial rubber products for automobiles.  The Company also produces electronic equipment used for cellular phones and PCs.  NOK has production facilities in Taiwan and Thailand.

The Yokohama Rubber Company Limited produces rubber products including automobile tires, tubes, and conveyor belt for industrial use.  The Company also produces golf clubs and passenger aircraft parts such as restroom units and tanks for drinking water.

Fuyao Glass Industry Group Co Ltd, through its subsidiaries, manufactures and distributes automobile glass, decorated glassware, and other industrial glassware. The Company also provides glass installation service. Fuyao Glass Industry Group markets its products internationally.

Hyundai Mobis Co., Ltd. manufactures and markets automotive parts and equipment, such as  automotive service components, modules, and systems. The Company also contractsenvironmental projects, including sewage treatment plant and industrial waste water treatment plant construction.

Bosch Limited manufactures a wide range of automotive parts. The Company'products includes fuel injection pumps, spark plugs, including nozzles and nozzle holders, elements, delivery valves, filters and filter inserts, glow plugs, starter motors, alternators and wipers. Bosch also manufactures hydraulics and pneumatic equipment and electric power tools and fixtures.

Johnson Controls, Inc. markets automotive systems and building controls.  The Company supplies seating systems, interior systems, and batteries.  Johnson Controls also provides building control systems and services, energy management, and integrated facility management, as well as provides batteries for automobiles and hybrid electric vehicles.

Samvardhana Motherson International Limited manufactures and distributes automotive parts. The Company offers products such as HVAC systems, air intake manifolds, highway vehicle cabins, air compressors, and pedal box assembly. Samvardhana Motherson International markets its products worldwide.

Samvardhana Motherson International Ltd (MOTHERSO IN)

Aptiv PLC manufactures vehicle components. The Company produces electronic safety for automobile and commercial vehicle manufacturers. Aptiv supplies original equipment manufacturers throughout the world.

Compagnie Generale des Etablissements Michelin manufactures auto parts. The Company offers tires and other products. Compagnie Generale des Etablissements Michelin serves clients worldwide.

Continental AG manufactures tires, automotive parts, and industrial products. The Company produces passenger cars, trucks, commercial vehicles, bicycle tires, braking systems, shock absorbers, hoses, drive belts, conveyor belting, transmission products, and sealing systems. Continental markets its products worldwide.

HELLA GmbH & Co. KGaA develops and manufactures lighting, electronic components, and systems. The Company offers spare parts, chassis, side lights, and accessories, as well as vehicle diagnostics, battery installation, and lighting services. HELLA serves customers worldwide.

Cheng Shin Rubber Industry Co., Ltd. manufactures tires.  The Company produces bicycle, radial, bias, motorcycle, agricultural, and industrial tires.  Cheng Shin markets its tires and tubes in Taiwan as well as exports to North America and Europe.

Cheng Shin Rubber Ind Co., Ltd. (2105 TT)

DENSO CORPORATION manufactures electronic parts for automobiles.  The Company's products include automobile air conditioners, air bags, ignition systems, generators, power steering systems, and spark plugs with iridium electrode. The Company also produces communication equipment for mobile navigation system.

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Denso Corp (6902 JP)

'Model AA' Shares - Good Governance Gone Bad?

After the close on Tuesday April 28, 2015, Toyota announced the board had resolved to submit to shareholders a resolution to partially amend the...

Travis Lundy

Good Morning Japan |Argentina and Messi Triumph! Recession Fears Persist - No Break for Equities

Good Morning Japan: We strive to provide the best macro, stock and thematic overnight news that impacts your trading day in Japan. FOLLOW TO KEEP...

Mark Chadwick

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