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Getting the Deal Through – Initial Public Offerings 2016

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Getting the Deal Through – Initial Public Offerings 2016 JAPAN Nishimura & Asahi Japan Kohei Koikawa and Masashi Ueda Nishimura & Asahi Market overview authority to enforce the FIEA and the regulations there under. If the rules of a stock exchange are violated, such stock exchange has the authority to 1 What is the size of the market for initial public offerings enforce its rules. (IPOs) in your jurisdiction? There are two types of listing market in Japan. The first listing market is a 5 Must issuers seek authorisation for a listing? What normal one and includes the Main Market (First and Second Sections) of information must issuers provide to the listing authority and the Tokyo Stock Exchange, the JASDAQ market and the Mothers market. how is it assessed? In 2014, 77 issuers were newly listed on the normal market. The second Issuers must be examined by the stock exchanges in order to obtain listing listing market is Tokyo Pro Market, which is operated by the Tokyo Stock approval. Issuers must provide detailed information, such as an overview Exchange, and only professional investors can invest in such Japanese of the corporate group, overview of the business, organisational control stock exchanges. In 2014, three issuers were newly listed on the Tokyo Pro system and distribution of shares to the stock exchanges. For example, the Market. Tokyo Stock Exchange and Japan Exchange Regulation (to which the Tokyo Stock Exchange entrusts the listing examination) will measure the issuer’s 2 Who are the issuers in the IPO market? Do domestic conformity with the listing criteria set out under the Securities Listing companies tend to list at home or overseas? Do overseas Regulations; furthermore, it will carry out listing examinations particularly companies list in your market? focusing on facilitating fair price formation and smooth securities trading Most of the issuers in the Japanese IPO market are joint stock corpora- and whether the relevant matter at issue is necessary and appropriate in tions established under the laws of Japan. While large IPOs tend to include light of the public interest or the protection of investors. The disclosure Rule 144A offerings in the United States and Regulation S offerings in document is subject to review by the local finance bureau via preliminary other jurisdictions, Japanese domestic companies generally choose to list consultation before filing. at home only, and not overseas. In some cases, Japanese listed companies complete their secondary listing on oversea markets such as the United 6 What information must be made available to prospective States (NYSE and Nasdaq), Hong Kong and Singapore. investors and how must it be presented? Overseas companies that conduct global IPOs typically chose a public Upon an IPO, a securities registration statement must be filed and pre- offering or private placement in Japan and are not listed in Japan. At pre- sented via the EDINET (Electronic Disclosure for Investors’ NETwork) sent, only 10 overseas companies are listed on the Tokyo Stock Exchange. system. The contents of a securities registration statement mainly comprises 3 What are the primary exchanges for IPOs? What distinguishes a securities information section, in which the offering structure and the them one from the other? offered securities are described, and a corporate information section In 2014, the majority of newly listed companies were listed on JASDAQ (including financial statements and audit reports). The form and substance or Mothers, both of which are operated by the Tokyo Stock Exchange as of the securities registration statement are established by the Cabinet a market for venture and emerging companies. JASDAQ has two types of Office Ordinance on the Disclosure of Corporate Affairs, etc of Companies market: Standard or Growth. The Standard market is for growing compa- (Ministry of Finance Ordinance No. 5 of 1973). nies with a certain business scale and performance and the Growth market is for companies with unique technologies or business models and abun- Domestic companies dant future growth potential. Mothers is for emerging companies that aim In the case of a domestic corporation, a securities registration statement towards the First Section in the future. comprises four parts, as follows. The First Section and Second Section of the Main Market of the Tokyo Stock Exchange are the central stock markets in Japan, especially for large Part I: Information Concerning the Securities and medium-sized companies; the two sections are distinguished by cer- The issuer must provide information concerning the terms and conditions tain conditions such as the amount of market capitalisation. of securities and the structure of the public offering, including an offering timetable, the names of underwriters and pricing information. Regulation 4 Which bodies are responsible for rulemaking and enforcing Part II: Information Concerning the Company the rules on IPOs? The issuer must provide information about itself including an outline of its business, selected financial data, risk factors, analysis of balance sheets, The Financial Services Agency of Japan (FSA) and the stock exchanges business results and cash flows, corporate governance, material contracts, are responsible for rulemaking. The FSA has the authority to establish its material facilities, research and development activities, management and regulations and guidelines related to disclosure requirements under the financial statements. Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948 (the FIEA)). Each stock exchange publishes certain rules and guidelines includ- ing the listing requirements and listing process, in accordance with which Part III: Special Information such stock exchange carries out listing examinations. In a case where the issuer has issued the tracking stock the amount of divi- If an issuer violates any of the disclosure requirements under the FIEA, dends of which would be determined based on the amount of dividends the FSA, the local financial bureaus of the Ministry of Finance of Japan and of a certain subsidiary thereof, the issuer must provide the financial state- the Securities and Exchange Surveillance Commission of Japan have the ments for the five fiscal years of such subsidiary. 52 Getting the Deal Through – Initial Public Offerings 2016 © Law Business Research Ltd 2015 Nishimura & Asahi JAPAN Part IV: Information Concerning the Initial Public Offering 8 What sanctions can public enforcers impose for breach of IPO The issuer must disclose the past assignment or acquisition of the equity rules? On whom? securities of the issuer by persons having a special interest in the issuer, If there is a breach of the disclosure requirements under the FIEA, an issuer an outline of past third-party allotment and the status of the shareholders. and certain parties or individuals related thereto may be subject to admin- A securities registration statement also must contain the audited istrative or criminal sanctions. Administrative sanctions include suspen- consolidated and non-consolidated financial statements (including their sion of permissions resulting from registration of the securities registration notes) for the most recent two fiscal years, together with relevant audit statement and fines. It should also be noted that any false or misleading reports (and their quarterly consolidated or non-consolidated financial statements in the securities registration statement, the prospectus and any statements and their notes, if applicable) in Part II. other offering materials may result in civil liabilities. If the stock exchanges find any breach of the rules prescribed by Foreign companies them after the listing, they are entitled to take certain measures, such In the case of a foreign corporation, a securities registration statement as announcing the breach to the public, requesting payment of a penalty comprises four parts, as follows. due to a breach of the listing agreement; requesting that an improvement report be submitted; designating the security as being on alert; and delist- Part I: Information Concerning the Securities ing the relevant security. The issuer must provide information concerning the terms and conditions of securities and the structure of the public offering, including the offering Timetable and costs timetable, the names of underwriters and pricing information. 9 Describe the timetable of a typical IPO and stock exchange listing in your jurisdiction. Part II: Information Concerning the Company The issuer must provide information about itself including an outline of The listing examination of a stock exchange takes the following steps: (i) the issuer’s business, selected financial data, risk factors, analysis of bal- preliminary application for listing; (ii) official application for listing; (iii) ance sheets, business results and cash flows, corporate governance, mate- listing examination; and (iv) listing approval. A listing on the First Section rial contracts, material facilities, research and development activities, and or the Second Section of the Tokyo Stock Exchange generally takes three management and financial statements; this part also includes a summary month from the official application to listing approval (but a considerable of the corporate legal system of the home country of the issuer. amount of time is also required for the preliminary application process) The underwriters conduct their due diligence concurrently with the listing Part III: Information Concerning the Guarantor examination process. The issuer must provide information
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