Far eastern megalopolis
For the uninitiated, Tokyo can be a bewildering place. Its bustle of neon lights and high-tech efficiency can be daunting, and its highly developed landscape can appear at odds with a country otherwise renowned for its tranquility and unspoilt natural landscape.
But scratch away at Tokyo’s vivid urban surface and you’ll find a city where ancient culture sits side by side with cutting-edge technology, and where businesses are racing to adopt modern best practices while retaining a sense of how things have always been done.
Companies considering a roadshow to the Japanese capital, however, will need to think seriously about what they hope to gain from it. If an IRO is planning to return home with more than kimonos and karaoke memories, then he or she will need to carry out some serious research and preparation.
Plan of action
Firstly, companies have to set reasonable expectations regarding the Japanese market. As Paul Hebert, managing director of Citigate Financial Intelligence, notes, the Japanese equity market is not as mature as those in London, New York or continental Europe, nor is it anywhere near as large. Although there is a huge amount of money under management in Japan, most of it is invested in the fixed-income market.
‘Japanese investors invest more than five times as much of their global assets in fixed income as they do in equity,’ comments Hebert. ‘In total, there’s only about $123 bn dedicated to equity investing by Japanese investors in the US market, and about two thirds as much dedicated to the European market.’
To put these figures into perspective, you only need to compare that $123 bn with the $600 bn invested in equity by just one US firm: Fidelity. When a single US company has an equity investment portfolio five times as large as the entire Japanese market for US equity, it should be clear that companies will have their work cut out for them if they expect to make gains from a Tokyo roadshow.
That’s not to say that getting interest from Japanese investors is impossible. One company that has had success in Tokyo is Bank of China, which held its first Tokyo roadshow in July 2002, following its listing on the Hong Kong Stock Exchange. It held further roadshows in the city in November 2002 and December 2003, and is planning another trip in April this year to present its audited results.
‘When planning a Tokyo roadshow, companies normally go through an investment bank,’ advises Jason Yeung, company secretary and head of investor relations at Bank of China. ‘Outsiders know very little about the investment environment in Tokyo, so it’s advisable to have a Japanese investment bank make the arrangements.’ Bank of China leaves its investor targeting and all logistical planning to its investment bank.
Hebert agrees that investment banks are crucial to roadshow organization in Tokyo. ‘The real challenge in Japan is identifying who controls the money in the equity market,’ he explains. ‘There are probably fewer than 100 firms that control the money, but often you can get information on only half of them.’ Because of this, Hebert says Citigate advises clients to rely as heavily on banking relationships as they do on consultants when planning a Tokyo roadshow.
Preparation and research, however, are not enough to guarantee success. In fact, many companies will have to accept that a Tokyo roadshow is not for them. The truth is that Japanese investors are interested only in companies with a large market cap and a solid brand name.
‘If you don’t have more than a $15 bn-$20 bn market cap, you’re really going to struggle in the Japanese market,’ comments Hebert. ‘And global brand names are more popular because they’re easier for foreign investors to understand.’
All in the details
If a company does decide to embark on a Tokyo trip, the actual logistics are much the same as in any other financial center, although there are certain elements peculiar to the city to bear in mind.
Most roadshows consist of formal one-on-ones, generally held at company offices rather than in hotels or presentation venues. Group breakfast or lunch presentations are rare, although lunch one-on-one meetings are acceptable. Much more common, however, is a series of formal meetings throughout the day, the earliest being at 9.30 am or 10 am, and the latest starting at 5 pm.
Although most people agree there is little difference between the content of a roadshow in Tokyo and one in any other financial center, Hebert offers some advice on tweaking a presentation. ‘The one thing we would advise clients to do – and this is slightly different to presentations in Europe and the US – is to spend a lot more time on industry trends,’ he explains. ‘In general, Japanese investors attend roadshows not just for potential investment purposes, but also to gain competitive intelligence.’
Japanese investors also often like to see contextual information: what is new in an investment area, and what the trends are in specific sectors. Clayton Besch is director of international business development in Japan and Korea for American company Softbank, and worked in various brokerages in Japan for 14 years. He says companies need to illustrate their stability to Japanese investors, and describes the Japanese investor as very risk-averse.
‘You have to give Japanese investors a level of comfort that will overcome their concerns about investing overseas,’ Besch comments. ‘Because even if you offer them something which has a very low risk and a much higher return than anything they would find domestically, they are often still reluctant to take the plunge.’ A commitment to communication and a willingness to answer all questions are clearly of the utmost importance.
Clear messages
But communication in Tokyo is, of course, not always straightforward. The language of business is still Japanese in many cases, so companies need to hire a top-notch interpreter and have all of their materials ready-translated.
Most Japanese business people understand English, so it is an option to give the presentation in English. Questions from the audience, however, will often be asked in Japanese. This is because although many Japanese people can understand English perfectly, they feel less confident expressing themselves in a foreign language in business situations unless they are completely fluent. So having a translator to hand at all times is a must.
This language translation can pose other problems, too. ‘If you’re in a meeting that requires translation throughout, a 45-minute presentation can end up taking an hour and a half,’ warns Hebert. As a result, Citigate advises clients to limit meetings to four per day, meaning that a Tokyo roadshow will probably last at least three days.
Limiting meetings to four per day also allows for traveling around the city, as the slow-moving traffic can sometimes make this a problem. Tokyo taxis are clean and reliable, but there is etiquette to keep in mind: never open or close the taxi door – that’s the job of the driver – and traditionally the most important person sits in the middle of the back seat, with the less important people on each side. Allow plenty of time to arrive on time, too, as Japanese people are fussy about punctuality.
Another crucial aspect of Japanese etiquette is business cards, or meishi, which are treated with great respect. They are meant to be handed over and received with both hands, the right way up from the receiver’s perspective, and should be produced from a jacket pocket, never from a trouser pocket. More important than remembering these mannerisms, however, is to bring a large supply, so you always have a meishi to offer.
Above all, remember not to drink too much sake and sing karaoke in front of the CEO. Some say getting Japanese investment is tough – but getting through karaoke with dignity is far, far tougher.
carolinet@irmag.com
Quick Japanese lesson
Hello – konnichiwa
Thank you – arigatoo
Goodbye – sayonara
Do you speak English? – eigo o hanashi masu ka?
I don’t understand – wakari masen
Sumitomo Mitsui Asset Management
Barclays Global Investors
Nissay Asset Management
DLIBJ Asset Management
Nomura Asset Management
State Street Asset Management
Yasuda Asset Management
Daiwa SB Investments
Fidelity Investments
Merrill Lynch Investment Managers
and The IR Corporation estimates, September 2003
Nomura Securities
Daiwa Securities Group
Nikko Cordial Securities
Mizuho Bank
Salomon Brothers
Goldman Sachs