Japan: New infrastructure fund market

Author: | Published: 23 Sep 2015
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Nagashima Ohno & Tsunematsu

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Shiro Kato

On April 30 2015, the Tokyo Stock Exchange established the Infrastructure Fund Market. This is a special securities market on which funds making investments in renewable energy generation facilities (such as large-scale solar power plants), concession rights for public facilities and other infrastructure facilities can list their shares. The establishment of the Infrastructure Fund Market came about with the growing reliance on private funds, in place of public funds which are subject to governmental and financial constraints, the increase in demand for private companies' experiences and know-how relating to the maintenance and operation of infrastructure facilities, and the growing interest in making investments in infrastructure facilities to earn regular profits.

Investment corporations and investment trusts established under the Act on Investment Trusts and Investment Corporations (Act 198 of 1951) can list their shares on the Infrastructure Fund Market. Such investment corporations and investment trusts are expected to directly own infrastructure facilities, or to indirectly own them through financial securities.

The system of the Infrastructure Fund Market is fundamentally similar to that of the Real Estate Investment Trust (J-REIT) Market, whose main investment target is real estate assets such as office buildings and residential buildings. However, since profits arising from infrastructure facilities depend on the way such infrastructure facilities are operated and, moreover, the performance of the operator who manages and operates the infrastructure facilities influences the amount of such profits, the Tokyo Stock Exchange imposes certain requirements, such as the establishment and disclosure of criteria based on which the operator is selected. In addition, the investment targets of these funds are, in principle, limited to infrastructure facilities which have already been operating for more than one year to stabilise the profits created by infrastructure funds.

In recent years, the Japanese government has carried out large-scale regulatory reforms of the energy market, including the liberalisation of the electricity market. In such circumstances, investments in infrastructure facilities have been revitalised and many private funds have been established to make investments in infrastructure facilities, such as large-scale solar power plants. The establishment of the Infrastructure Fund Market can be considered to be a part of this trend, and it is also expected that the market will provide an exit route for the private funds.

Shiro Kato