(adds details, background, comments from TSE)
TOKYO, March 15 (Reuters) - The Tokyo Stock Exchange (TSE) is considering a minimum market capitalisation of 25 billion yen ($223.87 million) and disclosure in English as requirements for companies to stay listed on its first-section, or the main board, the Nikkei financial daily reported on Friday.
The TSE plans a grace period of at least three years before introducing the new rules and is considering the option of making changes gradual, the paper also said, as the new requirements could trigger big fund shifts by investors and potential market disruptions.
An external panel set up by the TSE has proposed the exchange should consider having stricter rules for companies to stay on the main board, amid criticism the exchange is allowing zombie companies to remain listed.
As of November, there were 2,119 firms on the TSE’s first section - way above 292 in Euronext’s compartment A and 500 in London Stock Exchange’s Premium Listing, and close to the 2,434 in the New York Stock Exchange in the United States, whose economy is almost four times bigger than Japan’s.
About a third of the TSE’s main board’s counters are now valued at below the 25 billion yen ($226 million) mark the exchange sets as a minimum for new listings. Many of them also trade below their book value.
Once listed, however, the TSE has kept companies listed unless their market cap falls below 2 billion yen. The Nikkei says the TSE is considering requiring firms to keep a market cap of at least 25 billion yen.
Only about a third of main board companies currently disclose earnings in English, which some say is discouraging foreign investment, the Nikkei also said.
Narrowing down the main board would help investors’ funds, particularly those managed passively, concentrate on stronger companies, rather than being spread out broadly to companies that are struggling to boost their values.
Proponents say that would help boost Japanese share prices and put more pressure on companies to boost profits.
But any such attempts to trim the main board are expected to meet strong opposition from companies that could be kicked out from the main board given the prestige such listings hold in Japan.
A spokesman at the exchange said no decision has been made.
Expectations of TSE reforms have weighed on small-cap stocks in recent months.
$1 = 111.6700 yen Reporting by Hideyuki Sano; Editing by Christian Schmollinger & Kim Coghill