Response to Hazama’s Statement on Oasis’s Proposals
In the name of “sustainable growth,” Hazama is proposing poorly considered risks.
Oasis strongly supports the pursuit of sustainable growth, which should be focused on improving long-term corporate value. Yet, Hazama is aiming to expand for expansion’s sake, with little to no regard for investment return or risk. Quite simply, the ¥100 billion of excess cash is burning a hole in Hazama’s pocket, and instead of developing a prudent capital allocation policy, it is going to simply splurge the cash on real estate at peak valuations – a mistake it made before with devastating results. We have studied these businesses in detail. Equity prices of listed real estate companies are trading at large discounts to NAV today because of fears that real estate prices will decline significantly.
Instead of spending ¥100 billion on real estate or power businesses, the company must implement a more balanced capital allocation policy. It should invest in growing its civil engineering business, and in new technologies that will help address the company’s future challenges, such as a decline in the labor force. Buying back shares means investing in itself and increasing its own corporate value. Share buybacks are an integral part of an efficient capital allocation program, and not a free giveaway of cash. Hazama has a significantly higher return on equity than most Japanese real estate companies. It will not find an investment that could match the return from buying back its own shares.
Hazama’s claim that it must retain its cash because of the COVID-19 crisis is plainly incongruous with its planned investments in real estate.
Oasis is highly sensitive to the impact of the COVID-19 crisis on all companies and all people, and we have decided against making proposals to many companies in light of the impact. Nevertheless, COVID-19 must not be used as an excuse to maintain poor corporate governance practices or as a cover for investment decisions that will destroy corporate value into the future.
Shareholders must stand up to Hazama’s management before it is too late, and all stakeholders are left to suffer. The current management are experts at civil engineering, but ill-equipped to wisely invest Hazama’s vast financial resources to grow the Company’s long-term corporate value.
Hazama also expressed its opposition to our proposal to add a safety and health article to the Articles of Incorporation. When we submitted a similar proposal at last year’s AGM, the Company said that it already had effective safety and internal controls and as such the inclusion of the article was unnecessary. Yet, just a few months later, Hazama became embroiled in yet another scandal, when it became public that the Company had under-reported income for five years. This scandal implies that the Company’s internal controls need further strengthening and with health and safety being a priory in our eyes, we believe that any additional focus on the area would be welcome.
The Oasis proposals represent far more than a simple buyback and inclusion of safety language into the Articles of Incorporation. These proposals are an opportunity to steer management away from a path of self-destruction and onto a path of self-preservation, improvement, and growth. Supporting these proposals will increase Hazama’s corporate value.
We ask all shareholders who care about Hazama’s future to vote FOR these proposals at the upcoming AGM.