Snapshot: key considerations for debt capital markets in Japan


Key considerations

Special debt instruments

How active is the market for special debt instruments, such as equity-linked notes, exchangeable or convertible debt, or other derivative products?

According to the Japan Securities Dealers Association, the total amount raised by convertible bonds in Japan during the period between April 2022 and March 2023 was ¥3 billion. Some convertible bonds are listed on the Tokyo Stock Exchange. Issuance of other special debt instruments by Japanese companies in Japan is uncommon.

What rules apply to the offering of such special debt securities? Are there any accounting implications that the issuer should be aware of?

The rules that apply to the offering of special debt securities are generally the same as those that apply to other debt securities. However, the issuance of convertible bonds by Japanese companies is subject to certain rules that apply to equity securities under the Companies Act. For example, those rules require an interval of two weeks or more from the date of filing of a securities registration statement (SRS) or its amendment, or the date of a public notice containing certain offering information, to the closing date.


What determines whether securities are classed as debt or equity? What are the implications for instruments categorised as equity and not debt?

In general, an issuer determines whether securities are classed as debt or equity based on their legal formality, although there are securities of each type that have features of the other. Instruments categorised as equity will be subject to rules relating to equity securities under the Companies Act, which are more rigorous than those relating to debt securities.

Transfer of private debt securities

Are there any transfer restrictions or other limitations imposed on privately offered debt securities? What are the typical contractual arrangements or regulatory safe harbours that allow the investors to transfer privately offered debt securities?

A summary of private placements of newly issued straight bonds in Japan is set out below. A ‘private placement’ of newly issued securities is defined in the Financial Instruments and Exchange Act (FIEA) to mean, in essence, the solicitation of an offer to purchase that is made either:

  • to fewer than 50 offerees (a small-number private placement);
  • only to certain qualified institutional investors (QIIs) (a professional private placement);
  • only to certain specified investors (a specified investor private placement); or
  • subject to certain other circumstances as prescribed in the FIEA.


Private placements are subject to transfer restrictions. In a small-number private placement, the purchaser may not transfer the debt securities it purchased unless it transfers all the debt securities as a whole to another person, and because no subdivision of the securities is permitted, the number of debt securities must be less than 50 at any time. In the case of a professional private placement, the purchaser may transfer the debt securities only to other QIIs.

A specified investor private placement of debt securities is utilised specifically in a market for professional investors called the TOKYO PRO-BOND Market, which was established in 2011. Debt securities to be listed on the TOKYO PRO-BOND Market are subject to transfer restrictions under which the debt securities may only be transferred to specified investors, among others, and the offering procedures and disclosures for those debt securities are subject to requirements under the FIEA.

Transfer restrictions for debt securities offerings by Japanese companies in Japan are usually implemented through disclosure in the book-entry system of the Japan Securities Depository Center (JASDEC).

Cross-border issues

Are there special rules applicable to offering of debt securities by foreign issuers in your jurisdiction? Are there special rules for domestic issuers offering debt securities only outside your jurisdiction?

In general, the same rules apply to Japanese and foreign companies for the offering of debt securities in Japan. Certain rules, however, only apply to foreign companies, which may prepare a registration document, such as an SRS in English, if the foreign company satisfies certain conditions.

Offerings of debt securities by domestic issuers only outside Japan will usually be subject to the law of the jurisdiction in which the offering is made; various restrictions under the FIEA, such as registration by an SRS or preparation of a statutory prospectus, do not apply.

Are there any arrangements with other jurisdictions to help foreign issuers access debt capital markets in your jurisdiction?

At present, Japan does not have any special legal arrangements with other jurisdictions to help foreign issuers access its debt capital markets.


What is the typical underwriting arrangement for public offerings of debt securities? How do the arrangements for private offerings of debt securities differ?

The typical underwriting arrangement for public offerings is firm commitment underwriting, in which the underwriters agree to jointly and severally purchase the securities from the issuer. Arrangements for private offerings can differ from transaction to transaction.

How are underwriters regulated? Is approval required with respect to underwriting arrangements?

Under the FIEA, the Financial Services Agency (FSA) regulates underwriters as securities companies, which are known as ‘type 1 financial instruments business operators’. An entity must register as a type 1 financial instruments business operator to conduct a securities business, including underwriting, in Japan. A registered company is subject to various rules and regulations under the FIEA, including those relating to the business it conducts and its financial status. Pursuant to the FIEA, the Securities and Exchange Surveillance Commission may inspect underwriters as securities companies. Further, the FSA may require reports from securities companies and may issue business improvement orders or orders to suspend business if the securities companies violate securities regulations.

Each underwriting arrangement does not require an individual approval.

Transaction execution

What are the key transaction execution issues in a public debt offering? How is the transaction settled?

Typically, public debt offerings are subject to the Act on Book-Entry Transfer of Company Bonds, Shares, etc, which provides for delivery versus payment settlement. In that case, an interval of at least four business days is required from the pricing date to the closing date. This system does not permit any global or individual notes.

Holding forms

How are public debt securities typically held and traded after an offering?

Typically, public debt securities are held in a JASDEC book-entry system.

Outstanding debt securities

Describe how issuers manage their outstanding debt securities.

An issuer will typically use market purchases to manage its outstanding debt securities. The mandatory tender offer rule under the FIEA does not apply to debt securities, and tender and exchange offers are not made often.


Read More: Snapshot: key considerations for debt capital markets in Japan

2024-02-21 06:38:17

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