Hibiki Path Advisors Website

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02/Jul/2024 – About AGM of KINDEN CORPORATION

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Hibiki Path Advisors (hereinafter referred to as “Hibiki” or “we”) made a shareholder proposal regarding the appropriation of retained earnings (increase in dividends) at the 110th Annual General Meeting of Shareholders of Kinden Corporation (hereinafter referred to as “Kinden” or “the Company”) held on June 25, 2024. This proposal was Item No.4 (for specific details of our proposal, please see here).

According to the Extraordinary Report submitted by Kinden on June 27, 26.7% of the shareholders supported Item No.4. We would like to express our gratitude to the many shareholders who supported our proposal. Although the proposal was unfortunately turned down, we feel that the result sends a strong message from the shareholders to the Board of Directors, which is that shareholders want to see a stronger commitment to improving ROE.

If we exclude the approximately 864,000 voting rights of Kinden-related parties and cross- shareholders¹, (estimated from the top 30 shareholders listed in the summer 2024 issue of Toyo Keizai Inc’s Shikiho), Item No.3 received about 52% support from general individual shareholders and institutional investors. This indicates that general shareholders, free from cross-shareholding influences, are demanding more aggressive measures regarding the Company’s capital policy.

Furthermore, the approval rate for the reappointment of Chairman Doi and President Uesaka as directors at this General Meeting of Shareholders fell below 80%. For Chairman Doi’s reappointment proposal, excluding the votes of company-related parties and cross- shareholders², the approval rate from general individual shareholders and institutional investors was below 56%. This indicates that a substantial number of general shareholders and institutional investors continue to oppose the reappointment for the second consecutive year.

As shown by the above calculations, the proportion of company-related parties and cross- shareholders at Kinden is significant. These shareholders uncritically support the reappointment proposals of the current management and their proposed dividend distribution agenda, which distorts Kinden’s governance. Ideally, the management should act as agents truthfully acting for the benefit of the shareholders, who are the principals. Unfortunately, the future of Kinden looks bleak as long as the management is coddled by company-related parties and cross-shareholders. We believe that the reduction of cross- shareholdings is essential for the disciplined long-term growth and development of Kinden.

There are increasing criticism in the market about cross-shareholdings continuing to exist under the guise of “policy-held shares” without rational justification for such holdings. Kinden, with its high proportion of cross-holding shareholders, can be said to be completely “lagging behind” the path that Japan’s capital market is pursuing in the midst of globalization of investors and market mechanism.

In addition, since March 31, 2023, the Tokyo Stock Exchange has consistently demanded management to be conscious of the cost of capital and stock price, but the retention of this “policy-held shares” scheme and the large proportion of the aforementioned cross-shareholders leads to relaxed management discipline, and consequently inefficient allocation of management resources. We believe this is why general shareholders and institutional investors supported our capital policy proposal (for increased dividends).

In January of this year, Kinden announced their “Growth Investments in the Medium-term Management Plan and Initiatives to Enhance Corporate Value,” in which they indicated that they would strengthen their growth strategies and improve shareholder returns. However, the plan neither set concrete numerical targets for ROE, nor did it commit to any overhauls for their over-capitalized balance sheet. We believe this demonstrates that Kinden’s management is insufficiently investor-focused. Many shareholders recognize these issues, and we feel that addressing fundamental balance sheet issues and incorporating the opinions of non-cross-holding shareholders is essential for improving the approval rate of the top management.

While we continue to support the growth strategy of Kinden, we strongly urge the Board of Directors to present a fundamental reform plan for the balance sheet and to revise the mid-term management plan with numeric targets on future ROE.

¹ It is assumed that company-related parties and cross-shareholding parties oppose the shareholder proposal.
² It is assumed that the company’s related parties and policy holders agree with the reappointment of Director Doi.

For relevant posts on the company, please see the documents linked below.
16/Jun/2024 – ISS Recommends Support for Hibiki’s Shareholder Proposals
20/May/2024 – Shareholder proposal for KINDEN CORPORATION
14/Oct/2023 – Proposal Letter Explanation Video about Kinden Corporation

Please note that the publication of these materials does not solicit applications for or recommend the sale of certain securities, or provide advice on investment, legal, tax, accounting, etc.