Dubai : Japan’s new FDI rules to ease foreign takeovers

Tokyo : Red tape, high business costs and local fear of foreign take-overs have all held Japan back in the race to win foreign investment, but this may start to change when new merger and acquisition (M&A) rules take effect in May. With Japan’s population and workforce forecast to fall by about 10 million and 13 million respectively over the next 20 years, the world’s second-largest economy will suffer unless more foreign direct investment (FDI) comes in, economists say. Productivity The country needs to raise its productivity by bringing in new technology and management know-how, they say. “An ageing of the society means everybody who is left working has to work a lot harder. So you need productivity,” said Robert Feldman, chief economist at Morgan Stanley Japan Securities Co. “If we don’t raise productivity, our living standards will fall,” he said. The government had aimed to double Japan’s foreign investment stock to 13.2 trillion yen ($111 billion) in 2006 from 6.6 trillion yen in 2001. But that figure is estimated to have reached only 11 trillion yen as of the end of last year, a mere 2.2 per cent of Japan’s gross domestic product. That compares with 13 per cent in the US, 33.5 per cent in the European Union, and 14.3 per cent in China as of 2005, according to the latest UN World Investment Report. “There are a number of issues that affect the willingness of foreigners to come here,” Feldman said. “Regulation is very complex; getting regulatory decisions takes a long time; and the rules are not clear. In the end, sometimes it’s just not worth it when it takes so much work and so much trouble to come.” As a result, Japan has missed out on the global upsurge in FDI, which has been fuelled by cross-border mergers and acquisitions between developed countries. But economists say the country needs such investment to revitalise Japanese industry, citing the success of Nissan. Revamp “Since [chief executive] Carlos Ghosn joined Nissan, it has facilitated restructuring in areas such as its dealer network, which couldn’t have been carried out by Japanese management,” said Shujiro Urata, an economics professor at Waseda University. Help may be at hand, though, as new Japanese M&A rules that take effect in May will enable foreign companies to buy Japanese firms with exchanges of shares using their Japanese units, in so-called “triangular mergers”. “We may see an increase in foreign companies taking over Japanese companies,” said Patrick Mohr, a strategist at Nikko Citigroup Ltd. “[It may] not be a dramatic increase but enough to keep the steam alive.” Defence: Companies adopt anti-buyout measures Sensing the threat of foreign takeovers, more and more firms have been adopting takeover defences. According to Kengo Nishiyama, senior strategist at Nomura Securities Co, 224 listed firms, or 5.7 per cent of all listed companies, had adopted anti-takeover steps by April 2, compared with just 27 back in 2005. That number will top 300 by around May, he said. – Reuters