The conclusion is that we do not conduct a stock lending transaction.
The conclusion is as stated above. However, since we presume that we have received an inquiry that “Isn’t the management team conducting a stock lending transaction?” because of the following disclosure, we would like to explain this.
∙ Change Report on the Report of Possession of Large Volume of Mai Shin, Representative Director and President, filed on January 29, 2025.
“Regarding 920,000 shares collateralized to Tokai Tokyo Securities Co., Ltd. on January 30, 2024, I rescinded the collateral (release of pledge) on March 4, 2025, and lent 920,000 shares to Tokai Tokyo Securities Co., Ltd. based on a loan agreement on March 4, 2025. The name and the voting right of the loaned shares concerned are possessed by Shin Mai LLC.”
∙ Change Report on the Report of Possession of Large Volume of Nao Kataoka, Representative Director and Chairman of the Board, filed on February 20, 2025.
“Regarding 920,000 shares collateralized to Tokai Tokyo Securities Co., Ltd. on January 30, 2024, I rescinded the collateral (release of pledge) on February 17, 2025, and lent 920,000 shares to Tokai Tokyo Securities Co., Ltd. based on a loan agreement on February 17, 2025. The name and the voting right of the loaned shares concerned are possessed by Nao Kataoka.”
The above is an administrative disclosure associated with the switch from “a share collateral loan agreement” in which a shareholder pledges shares he or she possesses as a collateral to financial institutions to obtain a loan to “a loan agreement.”
Under the “loan agreement,” although the ownership of the shares is transferred from Shin and Kataoka to Tokai Tokyo Securities Co., Ltd., the names and the voting rights remain with Kataoka and Shin because Tokai Tokyo Securities Co., Ltd., which is the owner, made a “special shareholder request.”
Besides, although Tokai Tokyo Securities Co., Ltd. pledges the shares it owns to call loan brokers as further collateral, it cannot offer the shares to a third party as lending stock because the voting rights belong to the original shareholders (Shin and Kataoka in this case).
Therefore, it is not correct to speculate that the said agreement “may have resulted in an increase in lending stock and an increase in short selling.”
In addition, as mentioned at the beginning, since our management team does not conduct a stock lending transaction in the first place, short selling in the market is not due to stock lending by our management team.
Meanwhile, let us explain our approach to short selling.
For a start-up enterprise like us, we believe that it is essential to maintain the liquidity, or maintain the intraday trading volume, to survive in the capital markets.
This is because without liquidity, institutional investors would not be able to buy our shares even if they wanted to buy new ones.
This is because, since institutional investors invest a large amount of money, unlike individual ones, the minimum investment amount for a single company is inevitably large. Therefore, if the liquidity is low, they will have a problem that the share price drastically goes up in the process of buying or drastically goes down when they sell.
In addition, because M&A does not always occur every quarter, for example, the effect of transformational growth is not seen with every short-term announcement of financial results, but only with long-term announcement of M&A and each PMI.
As a result, our shares are held primarily by investors who prefer to hold them for the long term. This investor base is an important foundation that supports our long-term growth strategy, however, it also makes the diminishing trend of liquidity an inevitable phenomenon.
At first glance, short selling may appear to have a negative impact on the market. However, it is only short-term. Since short selling is subject to repurchase obligations, it will be eliminated in the long term and return to neutral. On the other hand, liquidity will certainly improve in the meantime. From this perspective, we think that short selling has a certain significance because it contributes to this improvement in liquidity.
Finally, we will continue to closely monitor various concerns related to short selling, stock lending, and stock liquidity issues and seek appropriate measures to address them.
We made a total of 71 timely disclosures, including M&A and monthly FAQs, and provided IR to a cumulative number of 185 domestic and 210 overseas institutional investors as well as individual shareholders in 2024. We have made efforts to deepen their understanding of our business conditions, strategies and growth potential, and aim to strengthen the relationship of trust with them and create better enterprise value and equity value.
In the process, we will keep responding while facing various challenges, and strive to contribute to the growth of our company and the healthy development of the market through our efforts on them. We would be grateful for your continued support.