Issuers are now able to offer securities in Japan by way of private placement to any number of foreign investors who meet the criteria of qualified institutional investors under the Securities and Exchange Law of Japan.
Before July 1 2003, issuers had few means available by which they could offer their securities in Japan to foreign entities by way of private placement. The Securities and Exchange Law allows only two forms of private placement: (i) private placements to fewer than 50 investors (qualified institutional investors are not included in the calculation if certain requirements are satisfied) and (ii) private placements to qualified institutional investors. Under private placements to fewer than 50 investors, issuers can offer their securities to up to 49 investors, including foreign investors. However, prior to July 1 2003 qualified institutional investors did not include foreign investors. Consequently, issuers were limited to offering their securities in Japan to up to 49 foreign investors.
As of July 1 2003 the qualified institutional investor definition has been amended to include foreign investors. To become a qualified institutional investor, a foreign investor must satisfy two requirements. First, a foreign investor must be either:
- a foreign securities firm, investment asset management firm, bank, insurance company, bank or investment consulting firm established in accordance with foreign laws which meet certain capitalization requirements based on type of business,
- a foreign government, governmental authority, municipal government, central bank or an international institution to which Japan has acceded; or
- a foreign company which files securities reports in Japan that meet certain asset requirements.
Second, to become a qualified institutional investor, a foreign investor must register with the Financial Services Agency in July of each year. Registration is effective for one year from September 1 of that year to August 31 of the next.
Foreign qualified institutional investors must also appoint an agent who is a Japanese resident. The agent represents the foreign investor in Japan to make the necessary registration filings and receive notices and documents regarding securities held by the foreign investor that have been acquired by means of a private placement in Japan.