TSE:   7203    Annual Meeting: 6/16/2015

Shareholders of Toyota Motor Corporation will consider and vote on a truly unique proposal at the forthcoming annual general meeting of the Japanese automobile titan: the creation and issuance of Class AA Shares. If approved, the board of Toyota will be authorized to issue up to five Series of the proposed Class AA Shares, and will initially issue up to 50 million shares, or up to ¥5 billion, in the first Series to select public investors.

Any class of preferred shares will usually carry comparably different rights and/or powers than ordinary shares, and the Class AA Shares proposed by Toyota are no exception. For instance, Class AA Shareholders will be restricted from selling their shares for up to five years, but in exchange will receive dividend payouts ahead of ordinary shareholders. Additionally, Class AA Shares will possess voting rights similar to that of ordinary shares, breaking from a tradition of non-voting class shares.

So what are Toyota’s intentions here? The board states that the non-listed public offering is intended to generate adequate capital to be invested in certain projects with mid- to long-term yields. However, one examination into Toyota’s shareholding structure shows that almost 30% of its outstanding shares are held by foreign investors, 29.4% by financial institutions and 20.6% by individual investors, whereby a majority are institutional investors. Given this, the Class AA Shares may not be particularly attractive to institutional investors who may shy away due to the five year selling moratorium. We believe instead that Toyota may be aiming to draw in individual investors who are interested in holding shares in the automobile giant in the long-run.

This type of capital-raising project is rarely seen in Japan. However, while it is fairly common for Japanese companies to have reservations regarding adopting new strategies or implementing new standards, they are most notorious for being watchful of the activities of others. We believe that if this issuance proves successful, then other companies may follow suit.

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