Foreign equity issuers can take advantage of two principal methods to access Japanese retail investors — by making a public offering without listing (“POWL”) or by making a public offering in connection with a listing on the Tokyo Stock Exchange (“TSE”).
1
Public Offerings without Listing in Japan (POWLs) vs. TSE listing
While POWLs have seen a recent flurry of use in Asian privatizations, listed offerings have their own advantages that may make a TSE listing more attractive to particular issuers.
Issuers can also sell newly-issued equities into Japan by means of either an offering to qualified institutional investors or a private placement to a small number of investors. Such methods may involve number of legal issues including US securities law clearance, but in any event these methods are not suitable for reaching retail investors in Japan.
Issuers have found that they can use the POWL structure to tap Japanese retail demand, more quickly and at lower cost than listed public offerings. While IPO listings generally take more than a year to complete, the recent POWLs were completed in only three months or less.
2
Structure of POWLs
Depending the global offering, POWLs may consist of ordinary shares or depositary shares - largely ADSs (yen depositary shares using a Japanese depository can be sold though a POWL, but no yen DR has yet been launched). In the case of depositary shares, certain technical legal complexities concerning how to handle future right issues in the home country are involved. A global offering by an Asian issuer typically has a US tranche and an international tranche, with POWLs usually being part of the international tranche.
In recent IPO POWLs there was no independent underwriting in Japan. An underwritten Japanese tranche is possible, but would require additional time for underwriters’ due diligence. The Japanese offerings can take the form of a primary offering (boshu) by the issuer (for newly issued securities) or a secondary distribution (uridashi) by the seller (for outstanding shares held by shareholders).
IPOs are priced through book-building by global coordinators.
3
TSE (Foreign Section) Listings
In 1980s, the TSE attracted established US and European firms as well as emerging multinational corporations. However, the number of companies listed on the TSE’s foreign section has fallen sharply, as both the end of the Japanese bubble economy and appreciation of the yen have seriously affected trading volumes on the TSE, and as difficult economic conditions in Japan and worldwide led to the dissolution or merger of listed entities. Recent international equity offerings through the TSE have been limited to issuers already listed.
Asian corporations with growing international profiles may desire to list on the TSE for geographical and business reasons. As evidenced by the recent POWLs, there is a potential domestic demand for foreign assets, influenced by strong growth in neighboring economies, the deflation of domestic assets and concerns about the financial systems in Japan.
4
Merits of TSE Listing v. POWLs
Foreign issuers, especially those doing business in Japan or in other Asian markets, may see a number of advantages for a Japanese public offering coupled with a TSE listing, including the following:
- Broader investor base: Securities sold through POWLs are marketed by Japanese brokers to their best customers, and as such securities must be traded through a foreign securities account they lack liquidity in the secondary market in Japan. Shares listed on the TSE are liquid and are much more widely distributed. A TSE listing thus can tap a broader retail market.
- Well-organized disclosure: TSE-required disclosures with accompanying media and analyst coverage lead to a greater transparency and credibility with investors.
- Higher corporate profile in Japan: Continuous distribution of the information through TSE enhances relations with customers, distributors, banks, media and the public.
Reforms to enhance competitiveness of Japan's capital markets are being considered.
5
TSE Listing Procedures
An issuer listing on the TSE must comply with both the TSE listing rules and the SEL registration requirements described above for POWLs. In principle, the issuer will apply to list not only the shares offered initially but also all its shares then outstanding, and must also apply for the listing of additional shares when issued in the future.
a. Appointment of Agents
The TSE will require a foreign listing applicant to appoint a sponsoring securities firm, which should be done at the outset, and certain other agents in Japan, as follows:
- the sponsoring securities firm, which will be responsible for overall listing procedures;
- a resident attorney-in-fact, who will handle every matter that may arise between the company and the TSE;
- a shareholders service agent (usually a trust bank), which will prepare the list of Japanese beneficial shareholders and exercise voting and other rights on their behalf; and
- a dividend paying bank (trust bank or major commercial bank)
Comments - add comment