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59% Firms in Japan Free of Debt

Japan’s net-cash proportion may in fact be too high,  some critics say.Japan’s net-cash proportion may in fact be too high,  some critics say.

Six out of 10 publicly traded companies in Japan effectively are debt-free as they build piles of cash earned from strong operations.

A total of 2,071 listed companies—or 59%—had more cash, cash equivalents and short-term securities than their borrowings, corporate bonds and other interest-bearing debt combined as of the end of fiscal 2017, up by 36 corporations from a year earlier. The data covered all publicly traded companies except for financial service providers and a few others, data compiled by Nikkei Inc. shows.

Joining the ranks of those with more cash holdings than liabilities were 147 companies as of March 31. Fujitsu used proceeds from the sales of shares in Fuji Electric and the mobile handset business to repay borrowings and redeem its bonds. As a result, the information technology equipment company had 50.6 billion yen ($462 million) in net cash, a turnaround from a year earlier, when it recorded negative net cash of 104.3 billion yen. “We were able to make significant progress in improving our finances,” Chief Financial Officer Hidehiro Tsukano said.

Harmonic Drive Systems, a manufacturer of speed reducers for industrial robots, also had 27.2 billion yen more in cash than liabilities as of March 31, improving its position by 31 billion yen. Growing global demand for robots is lifting sales of its strain wave gears, and the company’s operating cash flow increased some two billion yen to 9.2 billion yen.

Japan’s net-cash proportion may in fact be too high, some critics say. In contrast, only a little more than 30% of the roughly 4,000 US-listed companies have net cash holdings, according to QUICK FactSet, a Nikkei joint service with a US company.

Having unnecessarily large cash piles hurts financial indices, such as return on equity. Large pools of idle cash could also lead to a slowdown of Japan’s economy.

Unless businesses use funds for acquisitions designed to fuel growth, they are also certain to face increased pressure to return cash to shareholders. “Companies will need to show to investors that they are making good use of cash, such as growth-oriented investments and shareholder returns,” said Takashi Ito at Nomura Securities.

Armed with net cash holdings, listed companies in Japan are busy paying down loans from megabanks. The aggregate balance of borrowings from Mizuho Bank, MUFG Bank and Sumitomo Mitsui Banking Corp. at 100 major corporations had dropped by more than 300 billion yen at the end of fiscal 2017 from a year earlier. The data covered large-cap companies that disclosed lenders and debt balances on their shareholder meetings notices.

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