Shareholders Irked by Run of Japanese Offerings
February 17, 2011, Financial Times

Many investors, including hedge funds, are concerned that new shares issued by Japanese companies such as Resona Bank are diluting stock of existing shareholders and undermining share values. To balance their risks, hedge funds are engaging in short selling -- betting on the shares falling on news of a new issue and then buying the shares at a discount when new shares are allocated, a practice that the Tokyo Stock Exchange and regulators are looking to limit.

"Hedge funds are extremely interested in what Japan is going to do about this. Their view is: 'if I can't hedge my exposure, it will be difficult to buy new shares, unless I have an uncommon belief in the future of the company'," says Christopher Wells, a partner at White & Case, the law firm, in Tokyo.

Ultimately, say analysts, companies issuing new shares will need to convince investors they have a growth story.

"Shares of Japanese companies need to become a popular investment again, by having companies do better in explaining how they will use the proceeds to make more money," says Mr Wells.