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Japanese banks and insurers will sell Honda shares for $3.3 billion.

The decision by major Japanese financial groups, including Tokio Marine, Sompo, and two MS&AD units, to sell Honda Motor shares worth 535 billion yen ($3.3 billion) represents a significant move towards unwinding cross-shareholdings. This strategy, often used to reinforce business ties in Japan, has come under scrutiny for its potential to lead to lax corporate governance by insulating management from shareholder influence.

In addition to the insurers, Mitsubishi UFJ and Mizuho, Japan’s first- and third-largest financial groups, are also planning to participate in the sale. This indicates that the unwinding of cross-shareholdings is gaining momentum as part of broader corporate governance reforms in Japan. These reforms aim to improve transparency, accountability, and overall corporate governance practices, aligning them more closely with international standards and responding to criticism from governance experts and foreign investors.

The move to sell cross-held shares is seen as a positive step towards enhancing corporate governance, ensuring that companies are more responsive to shareholder interests, and promoting a healthier business environment.

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The recent announcement by major Japanese financial groups, including Tokio Marine, Sompo, and two MS&AD units, to sell Honda Motor shares worth 535 billion yen ($3.3 billion) marks a significant step towards unwinding cross-shareholdings in Japan. The secondary share offering, involving a total of 10 financial institutions, is expected to total 300 million shares, including over-allotment. The price for this offering has not yet been determined, but with Honda’s shares closing at 1,791 yen on Thursday, the value of the offering is approximately 535 billion yen.

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This decision is part of a broader trend towards enhancing corporate governance in Japan. Cross-shareholding, where companies hold shares in each other, has traditionally been a method to reinforce business ties within the Japanese corporate sector. However, this practice has faced criticism from governance experts and foreign investors who argue that it leads to poor governance by protecting management from shareholder accountability. The sale of these shares by the insurers and financial groups is a clear indication that Japan is making concerted efforts to reform its corporate governance practices.

The four non-life insurers involved in this sale, including MS&AD Insurance subsidiaries Mitsui Sumitomo Insurance and Aioi Nissay Dowa, have previously committed to reducing their cross-shareholdings to zero within a few years. This commitment was made in the aftermath of a price-fixing scandal that came to light last year, which further highlighted the governance issues associated with cross-shareholding. The decision to unwind these holdings is a direct response to the scandal and an effort to rebuild trust and integrity within the corporate sector.

Honda Motor Company was among the top five companies involved in cross-shareholding arrangements with these insurers, excluding Aioi Nissay Dowa Insurance, according to securities filings from March. The move to sell these shares is particularly noteworthy given Honda’s prominent position in these cross-shareholding networks. By divesting their holdings in Honda, the insurers are signaling a significant shift towards more transparent and accountable corporate practices.

This initiative also aligns with the broader corporate governance reforms being pursued in Japan. These reforms aim to improve transparency, accountability, and overall corporate governance standards, bringing them in line with international practices. The participation of Mitsubishi UFJ and Mizuho, Japan’s first- and third-largest financial groups, in this sale further underscores the momentum behind these reforms. It reflects a growing recognition within Japan’s financial sector of the need to address the governance issues associated with cross-shareholding and to promote a healthier, more competitive business environment.

Overall, the sale of Honda Motor shares by these major financial groups represents a significant milestone in Japan’s ongoing efforts to reform its corporate governance practices. It highlights the increasing importance being placed on shareholder accountability and transparency, and the commitment of Japanese companies and financial institutions to align with global governance standards. As these reforms continue to unfold, they are likely to have a lasting impact on the Japanese corporate landscape, fostering a more robust and investor-friendly environment.

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