Kitao Failed to Place SBI Insurance shares to Rakuten

Again Creating Dubious Capital Gain in Fiscal Year End. An Excuse of Kitao that Sale Offer to Yahoo was False.

April 20, 2013

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SBI’s Counterargument on our SBI Biotech article in April 2013 issue was just ridiculous. Please refer to the blog of our publisher, Shigeo Abe for the detail. Readers can clearly see the true nature of SBI. Mutual Fund Association of Japan must revise the obsolete pricing rules on unlisted shares which may trigger SBI abuses which may end up as losses to investors.

Now, the seasonal profit frame up at the fiscal year end was repeated. The fiscal year end was Friday, March 29th. After the regular business hours, in 20:30, SBI announced a release. Before taking a look, it was obvious that was for profit creation deal. Indeed. SBI sold 100% of SBI Credit, to an investment partnership “I-Sigma Business Support Investment Limited Partnership 1”, run by I-Sigma Capital, a subsidiary of trading firm Marubeni. On this deal, SBI would realize 3.3 billion yen capital gain in March 2013 earnings. 3.3 billion yen looks big, considering the nature of the year-end hustle. We would not criticize if SBI Credit deserves the value. But it barely keeps positive equity, and 3.3 billion yen capital gain looks unimaginable. SBI Credit runs auto loans, Earnings wise, it had 1.769 billion yen deficit in March 2011, 249 million yen deficit in March 2012, and just earned positive 29 million yen in March 2013.

Nobody Bought it without Quid-Pro-Quo

I-Sigma was established in June 2000, to cover Marubeni’s financial needs in related companies. Michiaki Kanoh, the CEO, is a veteran of Marubeni’s financial side, and has played a role in Asian Currency Crisis of 1997 with current Chairman of Marubeni, Teruo Asada. Why it had to buy such a company? SBI explains the sale will beef up Chinese auto loan business, but we cannot wipe out the questionable artificial nature of the deal.

The year-end deal was not limited to SBI Credit. In March 25th, SBI was trying to remove a loss-making subsidiary, SBI Insurance. It was Yoshitaka Kitao, who led the deal himself. It was Rakuten, led by Hiroshi Mikitani, who is a member of Industrial Competitiveness Panel of the Government. Kitao on that day stated in front of a top brass of Rakuten: “I asked you to manage a time to meet with me, as I thought we can sell SBI Insurance if the buyer was Rakuten”, hard-nosed Kitao proposed. The Rakuten person, of course, read the FACTA article (November 2012) on SBI Insurance, thus he returned: “Web Crew owns 20% or so stake, right?” Kitao nodded, and continued his story. “Of course we cannot sell all, so I would ask you to own like 40%”. He suggested 4 billion yen price.

SBI has been injecting money to this insurance subsidiary totaling 22.1 billion yen. Its earning in March 2013 was 5.449 billion yen, but SBI boasted it could make an IPO. In September 28th, 2012, SBI Insurance absorbed 6 billion yen from SBI, as new share placement, and in October 1st, SBI hastily sold 19.9% or 540,000 shares of the insurance subsidiary to Web Crew, a Mothers-listed company whose CEO is an ex-Murakami Fund employee Hiroshi Aoyama. The proceed paid by Web Crew was at 16.2 billion yen, but SBI was in return to invest either 10% of Web Crew’s market capitalization, or 1.62 billion yen whichever is lower. Thus, approximately 1 billion yen of the acquisition proceeds were prepared by SBI. Without such a quid-pro-quo, nobody would buy SBI Insurance.

With only 6 more days until the fiscal year-end, Kitao desperately wanted Rakuten to buy it, but the hard-nosed Kitao offered an exorbitant price.

Kitao must be in rage with our consecutive blows. The Rakuten top brass guy heard Kitao talking about FACTA, and he even mentioned that “Sale offer to Yahoo was nothing but a false story”. Oh my, poor Kitao. He even tries to conceal loss by selling the loss-making subsidiary, and he needs to excuse in such way. Anyway, this deal to Rakuten did not happen. Everybody knows Kitao’s logics are now defunct. Even if he keeps his hard-nosed pose, the situation surrounding SBI is getting tougher even though the stock market is getting higher.

A Resignation of President of SBI Securities

In SBI’s presentation to individual shareholders held in November 27th, 2012, Kitao praised the largest shareholder of the company (20%), Orbis Investment Management. He said that Orbis, who understands SBI’s business domain very well, was happy to be a 20% shareholder by visiting SBI every year accompanying a few analysts,

Yet, it is now selling SBI shares. The Orbis sale started from November 20th, and reached 13 billion yen until January 24th. It could have been cash raise to comply with an 20 billion yen investment to Hyundai Swiss Savings Bank of Korea, which was announced in the end of last year. Orbis kept on selling, and it now owns less than 5% in March 29th.

SBI needed to raise cash from its hidden asset in overseas. In March 11th,Yasutaro Sawada, the president of SBI Securities, suddenly resigned. He was said to have disappeared from the office, or could not eat, apparently a sign of psychological irregularity. No wonder he could not bear the stress of muddle through of profit frame-up.