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

GOLDWIN INC. manufactures and markets sportswear for skiing, snowboarding, soccer, tennis, swimming, and other outdoor activities.

DESCENTE, LTD. manufactures athletic clothing including golf wear and ski wear. The Company also manufactures tennis shoes, skies, and sports bags.

SEIKO HOLDINGS CORPORATION (Hattori Seiko) designs, manufactures, and sells electronic devices, watches and clocks in Japan and overseas. The Company also sells jewelry, ophthalmic lenses, golf clubs and computer peripherals.

WACOAL HOLDINGS CORPORATION manufactures women's underwear.  The Company also manufactures outerwear, sports, and children's wear.  Wacoal has direct-sales network and overseas operations in Southeast Asia, the US, and Europe.

SEIREN CO., LTD. is a dyeing processor of filament fibers.  The Company also produces silk, synthetic fibers, and textile products used in household interior and apparel.  Seiren manufactures industrial materials including automobile interiors such as seats, air bags, and ceiling.

The Japan Wool Textile Co., Ltd. (Nikke Group) manufactures and sells woolen textiles for school uniforms, fashion and business attire, and a variety of other apparel and non-apparel goods. The Company also produces woven materials, thread and yarn for weaving and knitting, fire-resistant clothing for firefighters, and non-wool related products. Nikke operates in Japan.

Gunze Ltd manufactures underwear, socks, outerwear, and other textile. The Company also manufactures functional materials such as plastic films, electronic materials, engineering plastics, printing machinery.  Gunze operates real estate.

KURABO INDUSTRIES LTD. mainly manufactures and sells yarns and woven fabrics made from cotton and synthetic textiles.  The Company also produces polyurethane foams, synthetic woods, inorganic building materials, adhesives, and specialty plastics.  Kurabo also has operations in information system, electronic appliances, biochemical products. and real estate leasing.

ONWARD HOLDINGS CO., LTD. manufactures men's ready-made suits, women's, and children's wear.  The Company has its own brands, Onward and KUMIKYOKU. Onward also manufactures sports goods, books, stationery, cosmetics, art decoration.

TSI Holdings Company Ltd. manufactures men's and women's clothing, and retails women's clothing.  The Company produces and sells coats, dresses, suits, sweaters, shirts, skirts, and pants.

Prada S.p.A. is an Italian fashion company that designs, manufactures, promotes and sells high-end leather goods, ready-to-wear and footwear through various brands.

Skechers U.S.A., Inc. designs and markets branded contemporary casual, active, rugged, and lifestyle footwear for men, women, and children.  The Company sells its products to department stores and specialty retailers.  Skechers also sells its products internationally through distributors and directly to consumers through its own retail stores.

SRF Limited is a multi-business Indian multinational engaging in the manufacture of chemical based industrial intermediates. The Company has a business portfolio that encompasses technical textiles, chemicals, packaging films and engineering plastics.

Ralph Lauren Corporation designs, markets, and distributes men's, women's and children's apparel, accessories, fragrances, and home furnishings. The Company's products are sold under a wide range of brands. Ralph Lauren's operations include wholesale, retail, and licensing.

Crocs, Inc. designs and manufactures shoes.  The Company produces soft, lightweight, non-marking, slip- and odor-resistant shoes made of closed-cell resin material.  Crocs manufactures men's, women's, and children's shoes and markets them to retail chains.

Shenzhou International Group Holdings Ltd manufactures and processes textiles.  The Company produces, dyes, finishes, prints, embroiders, cuts, and sews knitwear.

Tapestry, Inc. designs and markets clothes and accessories. The Company offers handbags, leather goods, footwear, fragrance, jewelry, outer wear, ready-to-wear, scarves, sunwear, travel accessories, and watches. Tapestry serves customers in the United States.

VF Corporation is an international apparel company. The Company owns a broad portfolio of brands in the jeanswear, outerwear, packs, footwear, sportswear and occupational apparel categories. VF Corp's products are marketed to consumers shopping in specialty stores, upscale and traditional department stores, national chains and mass merchants.

Brunello Cucinelli SpA is a luxury fashion company, known for its cashmere products as well as exclusive brands.  The Company designs, manufactures, and distributes clothing and accessories globally for men and women.

Moncler S.p.A. is a brand with a winter heritage. Known for its outerwear, Moncler today designs and produces clothing and accessories for women, men and children, directly distributed through Moncler boutiques, its online store, department stores and multibrand stores.

ASICS CORPORATION manufactures general sporting goods and equipment.  The Company's products, such as athletic shoes and sportswear, are distributed in the United States, Europe, Australia, and Asia.

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ASICS Corp (7936 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

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