The New Tokyo Pro-Bond Market

by Chihiro Ashizawa


Clifford Chance Law Office

The TOKYO PRO-BOND Market, a debt-securities exchange market for professional investors, was set up in May 2011 by Tokyo AIM (Alternative Investment Market), Inc.—a joint venture between the Tokyo Stock Exchange and the London Stock Exchange—which has also opened a market for equity trades, the Tokyo AIM Market.

Although there have been no transactions using the TOKYO PRO-BOND Market as of this writing (23 February), we believe it could introduce more flexible financing opportunities in Japan to issuers, especially those who are not Japanese.

Only professional investors and certain non-residents of Japan will be allowed to participate in the trading of instruments in the TOKYO PRO-BOND Market, and these listed instruments, with disclosure requirements, will be sold within the framework of a private placement.

Listing on the TOKYO PRO-BOND Market is one of the requirements of such private placement (Private Placement to Professional Investors Only). This is a new exemption from the securities registration requirements under the Financial Instruments and Exchange Act of Japan (FIEA).

In order for this Private Placement to Professional Investors Only exemption to apply, the issuer must:

• List the instruments on the TOKYO PRO-BOND Market; and
• Fulfil two listing criteria, namely, (i) assign a credit rating to the instruments, and (ii) ensure the placement is underwritten by a dealer listed on the Lead Managing Underwriter List prepared and published by Tokyo AIM.

The offerees of the initial distribution of the instruments must be professional investors, which include, among others, the qualified institutional investors, listed firms in Japan, Japanese stock companies (kabushiki kaisha) with ¥500mn or more in capital and foreign firms.

Both the issuer and initial subscriber, as well as the distributor and the initial subscriber, must enter into a transfer restriction agreement. This prohibits transfer of the bonds to a person other than a professional investor or certain non-residents of Japan.

Programme or standalone
The issuer can have its debt issuance programme listed when they obtain a credit rating in respect of the programme and appoint a prospective lead manager from the Lead Managing Underwriter List.

However, even if the instruments are issued by means of a draw-down from the listed programme, they must actually be listed as well to be sold within the framework of the Private Placement to Professional Investors Only.

Otherwise, to be sold in Japan, the instruments must follow the FIEA’s registration requirements or its other private placement exemptions.

The issuer can also choose to do a stand-alone issue for the purposes of the offer and listing.

Filing and disclosure documents
When the issuer chooses a programme listing, the following procedures must be followed:

• The Programme Information (at the time of programme listing) and the Specified Securities Information (at the time of the draw-down) must be filed with Tokyo AIM and published on the issuer’s website.
• If the issuer chooses to do a stand-alone issue, it only needs to file with Tokyo AIM and publish the Specified Securities Information on its website.

The issuer can prepare the corporate information to be included in the Programme Information or the Specified Securities Information by copying and pasting materials from its annual report, medium-term note (MTN) programme base prospectus, or any other existing offering documents prepared in English.

Continuous disclosure obligations
Following the offering, the issuer is obliged to file:

• Any amendments to the Specified Securities Information for one year from the publishing date;
• Any changes made to the Programme Information during the time the programme is in effect;
• The Issuer Filing Information (equivalent to an annual report) and any amendments thereto; and
• Disclosure documents in a timely manner.

The issuer can prepare the continuous disclosure documents by copying and pasting materials from its annual report, any supplement to its MTN programme base prospectus, or any other disclosure documents in its jurisdiction or elsewhere outside Japan, as long as they are prepared in English.

Disclosure liabilities
The FIEA imposes certain civil, administrative and criminal liabilities on the issuer and its directors in respect of the statements in the disclosure documents.

Comparison with the traditional Japanese market
In the TOKYO PRO-BOND Market, all disclosures can be in English and the form the disclosure documents take is flexible (i.e., the issuer can use existing disclosure documents in its jurisdiction), which may reduce considerably the documentation costs incurred by the issuer compared with those required for financing in the traditional Japanese market.

However, the issuer should ascertain whether Japanese investors would accommodate the instruments traded in the TOKYO PRO-BOND Market, since disclosures in English may affect the marketability and/or pricing of instruments offered.

Chihiro.Ashizawa (at) CliffordChance.com

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