A Red-Ink Subsidiary was Valued at 72 billion yen, and SBI is Desperate to Justify that.
July 20, 2012
In June 27th, one day prior to SBI Holdings’ shareholders meeting, a strange full-page advertisement appeared on Nikkei Newspaper, page 40. “We have something to report to everybody…” The ad was from SBI Pharma, formerly known as SBI Ala Promo. What was the reason of such a public announcement just one day before the general meeting?
Or, it needed to boost the value of something? That was the ALA (5-Amino Levrin Acid). The ad was describing that“University of Hawaii announced an article on a clinical test concerning the relation between ALA and blood glucose level.” With a footnote in small letters, it was added that SBI Pharma only provided ALA and the study was wholly planned and conducted by University of Hawaii. In short, SBI Pharma just supplied the material to the study of a third party.
The essence of the study: a researcher in U-Hawaii found 5-ALA may be effective to prevention of diabetes. For diabetic patients, this could be good news. Yet, does that worth announcing with a full-page ad? FACTA asked some medical doctors and drug company researchers, only to find that everybody ridiculed with the intention. The only beneficiary could have been Nikkei Newspaper, recently struggling with advertising business not reaching budget target. SBI definitely needs ALA to be a big medical smash hit. Because 5-ALA’s promoter SBI Pharma supposedly has a corporate value of 72 billion yen, and the drug must have medical value worth it. But even with a branding with University of Hawaii, 5-ALA won’t have such a value. As FACTA repeatedly pointed out, SBI has been fooling the stock market by using SBI Pharma to realize a fake profit. SBI boasted and self-claimed ALA by using 10 pages of its March 2012 investor relations material: that the Government of Bahrain agreed for joint study of ALA; that a joint venture negotiated in China for promotion of ALA; and in Korea, a joint business promotion with local drug company would start soon….All explains that SBI has no other business to bet on other than ALA.
We would like to reiterate. Before changing its name to SBI Pharma, SBI Ala Promo was nothing but a supplement promotion company with sales of 60 million yen, with 1 billion yen deficit. We also pointed out that a dubious transaction with NEXYZ, a TSE-1st section listed company, valued SBI Ala Promo at 1.0285 million yen per share provided ground for SBI to insist 72 billion yen corporate value. A new fact emerged. Half-year before NEXYZ subscribed the new shares of Ala Promo, SBI sold 972 shares of Ala Promo to Yoshitaka Kitao, SBI’s supreme leader. The fact is written on page 194 of SBI’s prospectus in its 2011 Hong Kong listing offering. Headlined as “connected party transaction”, it writes that Kitao bought 972 shares of SBI Ala promo with 1.02857 million yen, amounting to 1 billion yen, from SBI Holdings.
We would say: it is critically wrong for a CEO of listed company purchases shares of subsidiary of which his company is promoting in a big way. Should SBI Ala promo is such a promising venture, it is a big problem that the CEO steals the treasure of SBI. If SBI Ala Promo was proven to be a flop, and merely a banal supplement company, he framed up the valuation using his money. Either way, this is a serious violation of corporate governance. We really want to hear Kitao’s explanation, as he claims to be the benevolent protector of Japan’s clean capital market. Shareholders in SBI also demand to hear, we believe.
As it seems Kitao’s such an aggressive way casting shadow on morale, an anonymous letter arrived to FACTA revealing a background story of demotion of Shinji Yamauchi and Makoto Miyazaki from directors to executive directors.
Collaborators are Nagase and Sawada
Two companies were revealed to be the investors to SBI Pharma, with 1.02857 million yen valuation. One is Nagase, an operator of education business, including cram schools like Toshin School and Yotsuya Ohtsuka, and Itoman Swimming School. Akiyuki Nagase, the founder was an ex-colleague of Kitao at Nomura Securities. The other is Sawada Holdings, running travel agency HIS, HIS Securities, and newly –acquired Huise Ten Bosh, a theme park in Nagasaki, led by Hideo Sawada. Nagase owns 194 shares, and Sawada owns 175 shares of SBI Pharma, with acquisition price of 1.0285 million yen. Same as the price Kitao paid. They must have acquired during April2011~March2012 as their yukashoken hokokusho described. They too were the buddies to realize the stratospheric valuation. FACTA is very interested what kind of sweetners given to them, in lieu of accepting such an exorbitant valuation.
Cosmo Oil, the original developer of ALA and still 14% shareholder of SBI Pharma, keeps SBI Pharma’s value at 50,000 yen/share. What accounts for the difference with 1.0285 million yen /share? Cosmo Oil’s advertisement says that ALA is effective to grow flowers and vegetables faster and bigger, influencing photonic synthesis. We reckon ALA cannot justify an exorbitant valuation by trumpeting clinical tests and joint ventures.