Japan’s Top Insurers to Sell $3.1 Billion in Honda Shares

In a significant move indicating the acceleration of unwinding cross-shareholding practices, four of Japan’s top property and casualty insurers and other financial firms plan to sell around 500 billion yen ($3.1 billion) of shares in Honda Motor.

This decision comes as part of a broader trend towards reducing cross-shareholdings, which have been criticized for leading to lax governance and protecting management from shareholders.

Key Players and Stakeholders:

Insurers Involved:

• Tokio Marine Holdings
• Sompo Holdings
• MS&AD Insurance Group (including its units Mitsui Sumitomo Insurance and Aioi Nissay Dowa Insurance)

These insurers plan to offload their shares in Honda, bringing the total sale to around 500 billion yen based on Honda’s current share price. This sale is expected to be significant given that Honda is one of the top cross-shareholding companies for these insurers.

Other unnamed financial institutions are also expected to reduce their stakes in Honda, contributing to the total sale amount.

Honda Share Buyback:

Honda has announced plans to buy back up to 300 billion yen of its shares during the current financial year, which could help mitigate the impact of the insurers’ sale.

Historical Cross-Shareholding:

Cross-shareholding, where companies hold shares in each other, has been a longstanding practice in Japan to cement business ties. However, it has faced criticism for encouraging lax governance. As of March, the four insurers and their parent companies held more than 300 billion yen of Honda shares.

The decision to sell shares comes after the insurers were handed a business improvement order by Japan’s Financial Services Agency in December, following findings that they had fixed the prices of their corporate insurance fees. The regulator has directed them to reduce their cross-shareholdings.

Implications and Market Reaction:

Honda shares turned negative following the report, ending the day down 1.45% at 1,735 yen after earlier rising as high as 1,801 yen. The sale of shares by these high-profile insurers is seen as a significant move in the Japanese market, reflecting the ongoing shift away from traditional cross-shareholding practices.

Future Prospects:

The unwinding of cross-shareholdings is expected to continue, with governance experts and foreign investors advocating reduced cross-shareholding to improve corporate governance and accountability. The insurers’ move may signal further similar actions by other companies in Japan.