Conclusion of Share Exchange Agreement Between J TRUST Card and SAMURAI&J PARTNERS and Change in Subsidiary
Sep 23, 2020
J Trust Co., Ltd.
Ⅰ.Share Exchange1.Purpose of the Share Exchange The J Trust Group (the “Group”) aims to provide comprehensive financial services centered on the banking business and purchase/collection of receivables business under the vision of "We aim to be a provider of unique financial services not constrained by existing paradigms.” With Financial Business in Japan as a stable earnings base, we have been utilizing our operational expertise gained in Japan such as credit screening, collection, and marketing to further develop businesses in Southeast Asia, including South Korea, Mongolia and Indonesia, and have been expanding management bases in the Asian region. Currently, the Group's business segments consist of Financial Business in Japan, Financial Business in South Korea and Mongolia, Financial Business in Southeast Asia, General Entertainment Business, Investment Business, and Other Business. In Financial Business in Japan, we are developing business focusing on credit guarantee business and collection of receivables business backed by the strengths in areas including credit screening, collection, marketing, etc. We have established a stable business foundation based on steady stream of guarantee commissions from the existing credit guarantee balances. In Financial Business in South Korea and Mongolia, we have been utilizing our operational expertise including credit screening, collection and marketing gained in Japan to develop savings bank business, leasing/installment loan business, servicer business (collection of receivables business), etc. in South Korea. We have established a management platform with a three-pronged corporate group structure and have successfully built a stable earnings base there. In Financial Business in Southeast Asia, we have set up the same three-pronged structure that combines banking, financing and servicer operations in Indonesia while operating banking business in Cambodia. However, operating revenue from investment and loan at bank subsidiaries and finance subsidiaries in Indonesia is smaller than the current operating costs. Thus this segment continues to record losses. Given such situation and the spread of COVID-19 is rapidly transforming the economic environment around the world, adding future uncertainty, we recognize that it is critical for the Group to examine political and economic conditions of each country, profitability of business, etc. individually and restructure the business portfolio that can take a balance between need-based liquidity and profitability over the long run to adapt to the volatile economic environment in the wake of the pandemic. Against this backdrop, SAJP, which aims to establish a profitable foundation, approached us. SAJP is keenly interested in creating synergies with the financial business operated by the Group, particularly with the financial business in South Korea, as the nation is more advanced than Japan in financial technology or Fintech, and thus we began examining the Share Exchange with SAJP. SAJP comprises two business segments: (i) Investment banking business, which mainly assists financing through underwriting of allotment of new shares to a third-party, fund investment, loans, etc. and management/operation of crowdfunding sites; and (ii) IT service business, which mainly provides IT solutions. Under their three-year medium-term management plan "SAMURAI TRANSFORMATION" with 2021 as the goal, SAJP has drawn up basic strategic policies "growing existing business", "building a solid earnings base" and "pursuing growth through group-wide collaboration" to increase profitability. In addition, with the aim of strengthening Fintech business and further developing the field of crowdfunding business, SAJP implements new initiatives such as the launch of a new crowdfunding site for individuals. Despite these efforts, SAJP has been in the red and one of their top management issues is to reinforce business foundation urgently. SAJP determined the conclusion of the Share Exchange Agreement by considering that the addition of J TRUST Card and JT Chinae Savings Bank and the integration of "Korean Fintech" in its business can expect growth as a group. The status before and after the Share Exchange is illustrated as follows. As a result of the Share Exchange, the Company will acquire SAJP Class A preferred shares ("SAJP Preferred Shares") that can be converted into SAJP common Shares at any time. The advantages of the Share Exchange scheme for the Company are as follows. ・ If a simple share exchange is planned for JT Chinae Savings Bank, potential purchasers may be limited due to the size of the bank, which is relatively large among Korean savings banks. Under such circumstances, we have obtained an appropriate evaluation from SAJP for the value of shares of J TRUST Card and JT Chinae Savings Bank. ・ Due to regulatory requirements among others on the savings banks in South Korea, it has been difficult to utilize cash flows generated from business of J TRUST Card and JT Chinae Savings Bank, which will be transferred from the consolidated subsidiaries of the Company to the subsidiaries of SAJP resulting from the Share Exchange. However, through the Share Exchange, cash flows obtained from the investment in SAJP Preferred Shares or funds obtained through SAJP Preferred Shares and the converted SAJP common shares can be utilized for other business. ・ If SAJP common shares are used for the Share Exchange, voting rights ratio of the Company will become extremely high immediately after the Share Exchange goes into effect. ・ In contrast, the Share Exchange using SAJP Preferred Shares would protect interest in minority shareholders of SAJP and mitigate the impact of dilution on the share price of SAJP in the market. We believe that addition of J TRUST Card and JT Chinae Savings Bank to the SAJP Group will help establish a stable earnings base and increase corporate value of the SAJP Group by utilizing synergies between advanced Korean Fintech and existing SAJP business. At J Trust, we can expect investment return from SAJP Preferred Shares or the converted SAJP common shares without forfeiting future growth of the foregoing subsidiaries. We consider that the scheme of the Share Exchange will contribute to the reorganization of our business portfolio that can take a balance between liquidity and profitability. Consequently, we decided to agree with the Share Exchange using class shares proposed by SAJP this time. The Company will agree with the agenda item for the Share Exchange at the extraordinary general meeting of shareholders of J TRUST Card scheduled for October 30, 2020.
2.Overview of the Share Exchange
（1）Schedule of the Share Exchange
A) Date of Board of Directors resolution September 23, 2020 B) Date of signing the Share Exchange Agreement September 23, 2020 C) Extraordinary general meeting of shareholders resolution date (SAJP) October 30, 2020 (planned) D) Extraordinary general meeting of shareholders resolution date (J TRUST Card) October 30, 2020 (planned) E) Effective date of the Share Exchange: November 1, 2020 (planned)
(2)Method of the Share ExchangeThe Share Exchange is conducted with SAJP as the wholly owning parent company and J TRUST Card as the wholly owned subsidiary.
(3)Overview of SAJP preferred shares
|A) Number of issued shares||1,700,788 shares|
|B) Paid-in amount||12,700 yen per share (100 common shares for each share of SAJP Preferred Shares)|
|C) Total paid-in amount||With J TRUST Card shares as consideration, no payment of money is required.|
|D) Voting rights||Shareholders of SAJP Preferred Shares do not have voting rights at the general meeting of shareholders.|
|E) Limitation on exercise of conversion rights||Without obtaining approval at the Board of Directors’ meeting of SAJP, shareholders of SAJP Preferred Shares cannot make a conversion request that the ratio of voting rights of common shares to be held by shareholders of SAJP Preferred Shares and their joint holders (as defined in Article 27-23, Paragraph 5 of the Financial Instruments and Exchange Act) following conversion becomes 15% or over of the total number of voting rights of common shares (excluding treasury shares). If a conversion request is made without such approval, the request for the portion that exceeds the above voting rights ratio will be invalid.|
(4)Allotment related to the Share Exchange
|SAJP (wholly owning parent company resulting from the Share Exchange)||J TRUST Card (wholly owned subsidiary resulting from the Share Exchange)|
|A) Allotment ratio for the Share Exchange J TRUST Card common shares J TRUST Card Class II preferred shares||1 1||1.26832 7.57156|
|B) Number of shares to be delivered as a result of the Share Exchange||SAJP Preferred Shares: 1,700,788 shares|
(Note 1) Share allotment ratio: 1.26832 shares of SAJP Preferred Shares will be allotted for each share of J TRUST Card common shares and 7.57156 shares of SAJP Preferred Shares will be allotted for each share of J TRUST Card Class II preferred shares. (Note 2) 1,699,140 shares of SAJP Preferred Shares to be issued as a result of the Share Exchange, will be allotted to the Company. (Note 3) J TRUST Card Class II preferred shares are summarized as follows.
|A) Number of issued shares||12,500 shares|
|B) Voting rights||Class II preferred shareholders do not have voting rights at the general meeting of shareholders unless otherwise provided by law.|
|C) Dividends||(ⅰ) If dividends of surplus are paid by J TRUST Card to the Class II preferred shareholders or Class II registered preferred share pledgees listed or recorded in the final shareholder registry on the record date of dividends, in priority to the common shareholders or registered common share pledgees listed or recorded in the final shareholder register on the record date of dividends, 2,000 yen per Class II preferred share is calculated on a monthly pro-rata basis for the period from the first day (including the record date) of the business year to which the record date belongs up to the record date (including the record date), except that, for the period of less than 1 month, the amount will be pro-rated on the basis of a 365-day a year; provided, however, that if the payment of the dividend specified in this paragraph, or all or part of the Class II preferred interim dividend as provided for in Article 13-2-3 of Articles of Incorporation of J TRUST Card has already been made on the basis of the record date that belongs to the relevant business year, the total amount so paid is deducted from the amount of the Class II preferred shareholder dividends. （ⅱ）If the amount of dividends paid to Class II preferred shareholders or Class II registered preferred share pledgees does not reach the amount of Class II preferred shareholder dividends in a certain business year, such shortfall shall not be carried over to subsequent business years. （ⅲ）Dividends of surplus shall not be paid to Class II preferred shareholders or Class II registered preferred share pledgees for the amount that exceeds the Class II preferred shareholder dividends.|
|D) Distribution of residual assets||(ⅰ) If residual assets of J TRUST Card are distributed, 400,000 yen per Class II preferred share is payable to Class II preferred shareholders or Class II registered preferred share pledgees, in priority to the common shareholders or the registered common share pledgees. (ⅱ)Except as provided for in the preceding paragraph, no residual assets shall be distributed to the Class II preferred shareholders or the Class II registered preferred share pledgees.|
(5)Handling of share acquisition rights and bonds with share acquisition rights in the Share ExchangeThere are no relevant matters since J TRUST Card has neither issued share acquisition rights nor bonds with share acquisition rights.
3．Basis for the details of the allotment related to the Share Exchange（1）Basis and reason for allotment In order to ensure the fairness and appropriateness of the ratio of the Share Exchange (the “Share Exchange Ratio”), we asked Akasaka International Accounting Co., Ltd. (“Akasaka International Accounting”), a third-party valuation institution independent of the Company, J TRUST Card and SAJP, to evaluate the share value of J TRUST Card as an unlisted company and SAJP Preferred Shares as a listed company. In reference to the valuation results submitted by Akasaka International Accounting, the Company discussed with SAJP thoroughly and determined that 1.26832 shares of SAJP Preferred Shares shall be allotted for each share of common shares of J TRUST Card and 7.57156 shares of SAJP Preferred Shares shall be allotted for each share of Class II preferred shares of J TRUST Card. (2)Overview of valuation A）Name of valuation institution and relationship with the Company and counterparties Akasaka International Accounting, a third-party valuation institution independent of the Company, J TRUST Card, or SAJP, is not a related party of the Company, J TRUST Card, or SAJP and Akasaka International Accounting does not have any material interest that should be mentioned regarding the Share Exchange. B）Overview of valuation (i) J TRUST Card shares Akasaka International Accounting used the equity DCF method (valuation record date: September 23, 2020) for the valuation of J TRUST Card shares based on the financial track record till end of December 2019, the latest fiscal closing date, and financial forecast from December 2020 based on the foregoing track record. Among various share valuation methods, we have chosen equity DCF method using Free Cash Flow to Equity (FCFE) attributable to only shareholders of a company since it is a common method to valuate financial business and is suitable for the business characteristics of J TRUST Card whose interest-bearing debt constitutes part of working capital. The valuation was made based on financial forecast of J TRUST Card and its consolidated subsidiary JT Chinae Savings Bank (subject periods: fiscal years ending December 2020 to December 2023 for J TRUST Card and fiscal years ending December 2020 to December 2022 for JT Chinae Savings Bank). The following table shows business plan of J TRUST Card. The major reason for upward trends in profit is attributable to expected sales increases in line with the expansion of credit card business in subject periods.
|(Millions of yen)||December 2020||December 2021||December 2022||December 2023|
|Of which, dividends from JT Chinae Savings Bank||1,601||－||－||－|
|Ordinary profit (excluding the above dividends)||(71)||(18)||16||52|
|Valuation method||Range of per share value (common share)|
|Equity DCF method||8,807 yen to 20,075 yen|
|Valuation method||Range of per share value (class II preferred share)|
|Equity DCF method||55,498 yen to 126,509 yen|
|Valuation method||Range of per share value of SAJP Preferred Shares|
|Binomial model||12,495 yen to 12,938 yen|
(3)Expectations and reasons for entering the grace period for delistingAs of today, SAJP shares are listed on the Tokyo Stock Exchange JASDAQ market and it is expected that SAJP shares will continue to be listed after the Share Exchange. However, SAJP says the Share Exchange: (i) falls under a “share exchange that makes an unlisted company a wholly owned subsidiary”; (ii) is subject to delisting examination related to improper mergers, etc., based on the Tokyo Stock Exchange (“TSE”) delisting standard (JASDAQ market); and (iii) SAJP shares may be designated as "the issue in a grace period related to the substantive surviving company due to a merger, etc.” by TSE, adding that even if the issue is designated by TSE, the listing of SAJP shares will be maintained and SAJP will make utmost efforts to meet the criteria equal to the initial listing examination standard within the period. However, if it becomes difficult to maintain SAJP’s listing, we may not be able to expect a return on investment in SAJP shares.
(4)Measures to ensure fairnessIn order to ensure the fairness and appropriateness of the Share Exchange Ratio used in the Share Exchange, we asked a third-party valuation institution Akasaka International Accounting, which is independent of the Company, J TRUST Card and SAJP, with no conflicts of interest, to evaluate the share value related to the Share Exchange and obtained a written opinion (fairness opinion) from the institution to the effect that the Share Exchange Ratio is appropriate or fair for the Company and its shareholders from a financial point of view under certain assumptions.
(5)Measures to avoid conflicts of interestSince Mr. Nobuyoshi Fujisawa (“Mr. Fujisawa”), the largest shareholder and a director of the Company, is concurrently the largest shareholder of SAJP, Mr. Fujisawa has not participated in any discussion or negotiations regarding the Share Exchange on behalf of the Company, to prevent conflict of interest, and was not involved in the deliberation or resolution concerning the Share Exchange at the Board of Directors’ meeting held on September 23, 2020.
4.Overview of the parties involved in the Share Exchange
|(Wholly owning parent company resulting from the Share Exchange)||(Wholly owned subsidiary resulting from the Share Exchange)|
|A) Name||SAMURAI&J PARTNERS Co., Ltd.||J TRUST Card Co., Ltd.|
|B) Headquarters||1-7-12 Toranomon, Minato-ku, Tokyo||4-17 Chigusacho, Miyazaki-shi, Miyazaki|
|C) Representative||Keiichi Yamaguchi, CEO||Yoshihide Iimori, President & CEO|
|D) Business||Investment banking, IT service||Credit card, installment sales, moneylending, taxi ticket sales|
|E) Capital||2,105 million yen||90 million yen|
|F) Date of establishment||February 6, 1996||April 26, 1963|
|G) Number of issued shares||Common shares: 34,968,800 shares||Common shares: 1,283,972 shares Class II preferred shares: 12,500 shares|
|H) Fiscal year-end||December||December|
|I) Number of employees (as of December 31, 2019)||36 (consolidated)||513 (simple sum of JTRUST Card Co., Ltd. and JT Chinae Savings Bank Co., Ltd.)|
|J) Major customers||General customers||General customers|
|K) Major banks||MUFG Bank Kiraboshi Bank||Miyazaki Bank|
|L) Major shareholders and shareholding ratio (as of June 30, 2020)||Nobuyoshi Fujisawa 24.33% Kazuhiko Terai 9.77% CREDIT SUISSE AG SINGAPORE TRUST A/C CLIENTS FOR TAGUCHI SHIGEKI 2.76% Toshihiko Murayama 2.57% NLHD Kabushiki Kaisya 2.42% JAPAN SECURITIES FINANCE CO., LTD. 1.61%||Common shares J Trust Co., Ltd. 99.90% SAIKYO LEASING CORPORATION 0.10% Class II preferred shares J Trust Co., Ltd. 100.00%|
|M) Relationship between the parties||Capital relationship||N/A|
|Related party relationship||N/A|
|N) Operating results and financial position for the last three years (Millions of yen)|
|SAMURAI&J PARTNERS Co., Ltd. (consolidated)||J TRUST Card Co., Ltd. and JT Chinae Savings Bank Co., Ltd. (simple sum)|
|Fiscal year-end||January 2018||January 2019||December 2019||March 2018||March 2019||December 2019|
|Net assets per share (yen)||47.23||63.04||59.07||22,154.75||24,437.37||26,303.48|
|Profit attributable to owners of parent||(124)||(574)||(303)||218||2,968||2,363|
|Earnings per share (yen)||(4.49)||(17.19)||(8.68)||168.45||2,289.84||1,823.21|
|Dividends per share (yen)||-||-||-||-||-||-|
|O) Operating results and financial position for the last three years (Millions of yen)|
|J TRUST Card Co., Ltd. (non-consolidated)||JT Chinae Savings Bank Co., Ltd.(non-consolidated)|
|Fiscal year-end||March 2018||March 2019||December 2019||March 2018||March 2019||December 2019|
|Profit attributable to owners of parent||42||18||(2)||176||2,950||2,365|
|Wholly owning parent company resulting from the Share Exchange|
|A) Name (Note1)||Nexus Bank Co., Ltd.|
|B) Headquarters||1-7-12 Toranomon, Minato-ku, Tokyo|
|C) Representative (Note 2)||Joji Eguchi, Chairman Keiichi Yamaguchi, CEO|
|D) Business||Investment banking, IT Service, Fintech|
|E) Capital (Note 3)||50 million yen|
|F) Fiscal year-end||December|
|G) Net assets||Unable to confirm as of now|
|H) Total assets||Unable to confirm as of now|
6.Future outlookFor an impact of this matter on the Company's consolidated operating results for the fiscal year ending December 31, 2020, please refer to “Revision of Financial Forecast” issued today.
Contact for inquiries
J Trust Co., Ltd. Finance Department