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PLC Global Finance update for July 2010: Japan
Practical Law UK Articles 1-502-8786 (Approx. 3 pages)
PLC Global Finance update for July 2010: Japan
by Atsumi & Partners
| Published on 29 Jul 2010 • Japan |
The Japan update for July 2010 for the PLC Global Finance multi-jurisdictional monthly e-mail.
Restructuring and insolvency
Companies in civil rehabilitation proceedings no longer required to delist their securities in all cases
Until recently, stock exchanges in Japan would delist the securities of listed companies which filled a petition for civil rehabilitation proceedings. However, on 14 May 2010, PROPERST Company (PROPERST), which is a listed company on JASDAQ, an emerging stock exchange conducted by the Osaka Securities Exchange (OSE), filed a petition for civil rehabilitation proceedings without being required to delist its securities. This was a first in Japan.
Why was PROPERST able to file a petition for civil rehabilitation proceedings without having its securities delisted?
First, the OSE which sets the listing requirements for JASDAQ (the exchange on which the securities of PROPERST are listed) has relaxed its listing requirements. The securities of a listed company no longer need to be delisted upon a petition for the commencement of civil rehabilitation proceedings being filed if:
- The company, submits a rehabilitation plan to the OSE that has been approved by its creditors and which satisfies the OSE.
- The aggregate market value of the company's securities does not fall below JPY500 million in the period of one month from the day after which the rehabilitation plan is submitted to the OSE.
Second, it appears that PROPERST had only a few creditors so it was able to persuade its creditors to agree to its rehabilitation plan.
What are the advantages of not delisting in the context of DIP Financing?
For a company entering into civil rehabilitation proceedings, the ability to maintain a listing of its securities has obvious advantages for debtor-in-possession (DIP) Financing:
- If it becomes apparent that a company's financial condition is worsening, its customers may stop doing business with it. Delisting of the company's shares is a good (and public) indication of such worsening financial condition. By not being required to delist its securities, a company in civil rehabilitation proceedings can mitigate the damage to its business.
- As the securities are liquid, maintaining the listing of its securities allows the company to enter into debt-equity swaps with sponsors of DIP Finance.
Will a petition for civil rehabilitation proceedings without delisting stocks become common in Japan?
PROPERST was able to file a petition for civil rehabilitation without delisting its securities because it had only a few creditors. It might be difficult for listed companies with many creditors, such as consumer loan companies, to do the same. However, if the creditors are aware of the advantages of maintaining the listing, it might be easier to persuade them to agree to the rehabilitation plan and to not delist the company's securities.
Structured finance and securitisation
Japanese Government initiatives to attract real estate investment
On 22 June 2010, the Ministry of Land, Infrastructure, Transport and Tourism of Japan (MLIT) announced its "MLIT Policies 2010" to be discussed with market participants over the course of 2010 and 2011. Once the policies have been discussed, the MLIT will submit a bill to the Japanese Diet to amend the Act Concerning Designated Real Estate Joint Enterprises (Act).
The policies include:
- Establishing a new securitisation method to facilitate investment in real estate.
- Increasing the level and nature of disclosure required by persons offering investments in real estate to make such investments more attractive to investors.
By implementing these two policies, the MLIT hopes to stimulate investment in real estate that is in need of repair and, in relation to which, funding has been difficult to obtain.
New securitisation method
Currently, for a joint venture to invest in real estate in Japan, the investor that purchases the real estate must:
- Receive a licence from the government under the Act.
- Include the acquired real property on its balance sheet.
Investors cannot use a bankruptcy remote vehicle to acquire real property. This has made investment in real property an unattractive option for institutional investors (for example, pension funds and insurance companies) and the level of such investments has stagnated in recent years. MLIT is considering amending the Act to allow investors to use a bankruptcy remote entity to invest in real estate.
Disclosure system
With regards to the level of disclosure required in the context of real estate investments, the MLIT is considering expanding the list of items for which disclosure is required (for example, indices of real estate prices and information regarding the quality and risk profile of the relevant real estate (for example, environmental studies/assessments on matters such as land pollution)). In addition, the MLIT is considering ways to ensure more prompt and accurate disclosure of information to investors.