Private placingsSpecific regulation
Are there specific rules for the private placing of securities? What procedures must be implemented to effect a valid private placing?
Under the FIEL, a private placement of clause I securities for a primary offering must satisfy the following requirements:
- the number of offerees (not placees) in Japan is fewer than 50 (small number placement);
- offerees are limited to qualified institutional investors (QIIs) as designated under the FIEL (QII limited placement); or
- offerees are limited to professional investors as designated under the FIEL (professional investors limited placement).
Certain requirements to ensure the transfer restriction must also be met in order to avail the private placement exemption as described in the three points above. In addition, certain information prescribed by the FIEL and relevant orders thereunder as well as those required by the stock exchange in which the securities are or will be traded must be provided to the investors or publicly announced prior to the commencement of the offering.
The professional investors limited placement was introduced by an amendment of the FIEL and relevant orders thereunder in 2008. This amendment aimed at creating a new securities market targeting professional investors.
None of the exemptions above are available to an offering of equity securities issued by a reporting company when the ongoing reporting obligation is triggered in relation to the same type of (underlying) shares. In addition, the small number placement or QII limited placement is not available for the same type of securities offered by way of the professional investors limited placement.
The number of offerees of the same kind of securities (as defined in a Cabinet order) offered within six months before the existing offering must be aggregated for the calculation of the number of offerees in a small number placement (integration rules). However, the number of QIIs is disregarded when certain selling restrictions are complied with in respect of such QIIs. An offering of options to subscribe or acquire shares of the issuing company only to directors, corporate auditors, officers and employees of the issuing company or its direct wholly owned subsidiaries may be made without filing an SRS when certain conditions are met, even if such offering does not constitute a private placement. The Enforcement Order and related Cabinet orders under the FIEL were amended on 6 April 2011, and the exemption described above is now expanded to an offering of options to directors, corporate auditors, officers and employees of a second-tier subsidiary (ie, an entity that is directly and wholly owned by a direct wholly owned subsidiary) of the issuer, and these options are excluded from the integration rules described above.
Before the amendments to the FIEL, which took effect on 1 April 2010 (the 2010 FIEL amendment), a secondary offering constituted a private placement unless the number of offerees of securities with uniform terms (such as selling price and closing date) was 50 or more. Under the 2010 FIEL amendment, a private placement of clause I securities for a secondary offering must satisfy the requirements of the small number placement, QII limited placement or professional investors limited placement. The respective requirements for each category are mostly the same as those for a primary offering described above except that the integration rules in a small number placement shall apply to offerees for a period of one month and that the total number of holders of the securities may not exceed 1,000 as a result of the small number placement of foreign securities.
In addition, the following secondary offering transactions, among others, are exempted from the requirements for public offering:
- sale of securities through the market;
- sale of securities listed in Japan between securities firms or professional investors under certain conditions (eg, block trade);
- sale by foreign securities firms to securities firms in Japan or QIIs or sale by securities firms or QIIs to other securities firms for resale of foreign securities not subject to the transfer restriction of private placement;
- sale of securities not subject to the transfer restriction of private placements held by a seller other than insiders of the issuer (including the issuer, its subsidiaries, its principal shareholders and their directors and officers) or securities firms;
- sale of securities not subject to the transfer restriction between the insiders described in (iv); and
- sale of securities to the issuer or for resale to the issuer.
Further, for a public offering, with a total value of less than ¥100 million (the value of the offering of the same type of securities made within one year before the existing offering must be aggregated for the calculation of such total value of the offering), no SRS needs to be filed. Instead, a simplified form of securities notification must be filed before the commencement of the offering (there is no waiting period for such procedure).
Under the 2010 FIEL amendment, for a secondary offering by securities firms of securities issued abroad or issued in Japan but with respect to which no solicitations were made in Japan (foreign securities), no SRS needs to be filed even if such offering does not constitute a private placement, if the following conditions (foreign securities secondary offering), among other conditions, are met:
- information on the sale price of such foreign securities is easily available in Japan through the internet or other methods;
- such foreign securities are listed on a designated foreign exchange or continuously traded overseas, as the case may be; and
- the issuer’s information (in Japanese or English) is publicly announced pursuant to regulations of foreign exchange or applicable foreign law, as the case may be, and easily available through the internet or other methods.
In the case of clause II securities, the primary or secondary offering of clause II securities constitutes a public offering when more than 50 per cent of the capital or assets of the collective investment schemes issuing such clause II securities will be invested in securities and the number of purchasers, not offerees, as a result of such offering will be 500 or more, whether they are QIIs or not.Investor information
What information must be made available to potential investors in connection with a private placing of securities?
In the case of a private placement of securities, a document must be delivered to each investor at or prior to the time of sale stating certain items prescribed by the FIEL and relevant Cabinet orders. In general, such items include the disclaimer that no SRS has been filed for the placement, and the applicable transfer restriction, conditions or restriction of the rights as required under the FIEL on the relevant securities, unless the total amount of the placement (including private placements made within one month before the existing placement) is less than ¥100 million or disclosure as to the securities placed has already been made. This requirement is not applicable to a small number placement of shares. In respect of the professional investors limited placement, certain information about the securities as well as issuer information must be provided to the potential investors or publicly announced on or prior to the commencement of the placement as described in question 7. Securities firms that conduct a foreign securities secondary offering (described in question 7) must provide to the potential investors or publicly announce certain information about the securities and the issuer on or prior to the commencement of the placement subject to certain exceptions. Such securities firms are continuously required to provide or publicly announce certain information on request of their customers or on the occurrence of certain material facts subject to certain exceptions.
There is no other specific requirement under the FIEL on the information to be provided to potential investors in connection with a private placement.Transfer of placed securities
Do restrictions apply to the transferability of securities acquired in a private placing? And are any mechanisms used to enhance the liquidity of securities sold in a private placing?
There are transfer restrictions on the securities acquired in a private placement to the effect that the securities offered in a QII limited placement or a professional investors limited placement can only be transferred to QIIs or professional investors, as the case may be, and the securities offered in a small number placement must not be transferred to another, other than as a whole (unless the total number of bond certificates in the placement is less than 50 and cannot be further divided). Shares offered in a small number placement or clause II securities are not subject to any transfer restriction. Similar restrictions are applicable to private placements in a secondary offering under the 2010 FIEL amendment.
There was no mechanism to enhance the liquidity of securities sold in a private placement. However, upon the recent amendment to the FIEL, which aimed to create securities exchanges solely for professional investors, securities placed in a professional investors limited placement can be traded on such exchanges. At present, the Tokyo Stock Exchange operates the Tokyo Pro Market for professional investors in equity securities and the Tokyo Pro-bond Market for professional investors in debt securities.