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FOCUS: TSE decision to keep Olympus listed may cast doubts on transparency.

TOKYO, Jan. 21 Kyodo

Scandal-hit Olympus Corp. has avoided being kicked off the Tokyo Stock Exchange, but the bourse's decision could raise questions about the transparency of its delisting criteria and arouse mistrust in other Japanese firms regarding their corporate governance.

''For Olympus's shareholders, the decision is legitimate because they had no chance to find out about the accounting fraud,'' said an equity strategist at a brokerage house who asked not to be named.

''Looking at the incident as a whole, I had an impression that there was no malicious intent among those who were involved in the incident,'' the strategist said, adding that no link to organized crime syndicates has been found so far.

''The company was given a suspended term,'' he said, referring to the fact the stock was designated as being ''on alert,'' which means the firm is deemed to be saddled with problems in its corporate governance and has a risk of being delisted if no improvement is seen in the situation within three years.

Under the criteria, a company is obliged to submit a written report to the bourse every year to inform its state of governance. The bourse will lift the designation if it concludes there is no fault in the company's governance.

Tatsunori Kawai, chief strategist at Kabu.com Securities Co., meanwhile, was critical of the bourse's decision, saying the move may be taken by some investors as too lenient and could lead to doubts that there might be other companies which engage in similar conducts.

''Olympus should have gone out from the market once,'' Kawai said. ''Going public means gathering funds from an unspecified number of people, and there was falsification in the company's financial statements on which those people rely to make investment decisions,'' he said.

Like Olympus, brokerage Nikko Cordial Corp. managed to avoid delisting in 2007, after an outside panel commissioned by the company found that some of its former management executives were engaged in padding profits in a systematic manner.

But the bourse delisted textile and household product maker Kanebo Ltd. in 2005 after it was found to be inflating its group net profit while seeing liabilities exceeding assets for nine years from fiscal 1995.

Among others, the bourse delisted Seibu Railway Co. in 2004 and Livedoor Co. in 2006 for falsifying financial statements.

According to the bourse's delisting standards, it merely states that it will conduct probes to determine the level of impact of false statements.

In deciding not to delist Olympus, the bourse's self-regulatory body took into consideration such factors as its debts not exceeding assets when the accounting fraud took place and that only a limited number of people were engaged in the illegal act.

''We make judgment comprehensively by investigating relevant facts,'' Makoto Minoguchi, standing governor in charge of the listing regulation at the bourse's self-regulatory body, told a news conference Friday after the bourse's decision on Olympus.

A precision instrument analyst at a securities firm, who declined to be identified, also criticized the bourse's judgment on Olympus, saying it appeared arbitrary rather than based on clear standards.

''Taking into account the amount of hidden losses, which exceeded 100 billion yen, and the lengthy period over which they were concealed, the impact on the market was significant,'' the analyst said.

''Considering that the amount was not small, it seems that the bourse has adopted a new standard this time,'' he said.

Olympus stock ended Friday at 1,199 yen, unchanged from the previous day, with the stock already having recovered from its bottom of 424 yen on Nov. 11 on investors' speculation that it would remain listed.

But it is still far off its 2,482 yen price of Oct. 13, the day before former President and Chief Executive Officer Michael Woodford, who called into question the company's dubious acquisitions, was dismissed from his posts.

After one uncertainty -- whether the stock can remain on the bourse -- was removed, the market's focus now shifts to who will succeed President Shuichi Takayama, who is expected to resign, and with whom the firm would form a business alliance, said Masatoshi Sato, senior strategist at Mizuho Investors Securities Co.

''Investors seem to have mixed feelings of expectation and anxiety,'' Sato said.

''In addition to how the company would improve its image, they are likely to closely monitor developments related to who the company will team up to bolster its weakened capital,'' he said.
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Publication:Japan Weekly Monitor
Date:Jan 23, 2012
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