Equity Finance in Japan: private placement (第三割当増資)

In this post, I will look at how companies, specifically in Japan, use private placement.

Companies can use private placement as a means of:

1. Facilitating strategic alliances with other companies

This can result in cross shareholdings, such as in the case of Hitachi's and Toyo Denki Seizo's purchases of the other party's respective shares. (English, Japanese)

2. Raising funds to drive corporate rehabilitation initiatives

Real estate developer ES-Con Japan has issued press releases concerning its efforts to use private placement as a means of raising funds for its rehabilitation efforts (English, Japanese, refer to press releases dated September 25, 2009).

3. Raising funds for use toward improvements of business operations

4. Thwarting hostile takeover attempts

Some companies have used private placement as a takeover defense strategy whereby shares of the target company are privately placed with a white knight, thereby diluting shareholdings of the party attempting the takeover.

In 2006, for instance, Hokuetsu Paper Mills thwarted a hostile takeover bid launched by Oji Paper through a private placement of newly-issued shares with trading company Mitsubishi Corp. and Nippon Paper.

To learn more about the Hokuetsu incident, see this Japan Times article and these Mitsubishi press releases (Japanese, English) concerning the private placement of Hokuetsu shares.

The Daiwa Institute of Research has released a report on private placement as part of its Corporate Governance Reform series. The report details concerns related to private placement in Japan and provides examples of disputes related to private placement. 

Equity Finance In Japan: What is meant by an "allocation of new shares to a third party"?

第三者割当増資 (daisansha wariate zoshi)

You may have seen a term such as allocation of [new] shares to a third party, third-party allotment, or similar used in reference to security offerings of Japanese companies—and may have wondered what exactly was meant by it. Some IR departments in Japan opt to use such terms as a direct translations for daisansha wariate zoshi. Other IR departments, business publications, and so forth opt for the more globally recognized term, private placement of newly-issued shares (第三者割当による新株発行) or private placement of treasury shares (第三者割当による自己株式の処分). Refer to the table below for various ways the term daisansha wariate is translated, frequency of use of those translations (measured in Google hit counts), and for links to websites using the respective translations.

 

Companies in Japan can raise additional capital (増資, zoshi) through: (1) a public offering (公募, kobo¹), (2) a private offering (私募, shibo) involving a rights issue (株主割当, kabunushi wariate) to all current shareholders, or (3) a private offering involving private placement (第三者割当, daisansha wariate²) of shares to one or more specified third parties, such as employees or business affiliates, who may or may not currently hold shares in the company.

In a future blog entry, I will show how certain companies in Japan have used private placement.

Notes:

1. 有価証券の募集 (yukashoken-no-boshu) is an alternative term for kobo.

2. 縁故募集 (enkoboshu) is an alternative term for daisansha wariate.

 Translations of 第三者割当増資 and Frequency of Use

Notes:

1. The terms listed are sometimes used as translations for daisansha wariatezoshi (第三者割当増資)

2. Figures indicate Google hit counts for material posted over the last one year, on '.jp' websites only and on all websites.

3. Used by Nomura Securities in a terminology glossary.

4. Used by SoftBank in a press release.

5. Used by Sumitomo Mitsui Financial Group in a press release.

6. Used by Panasonic in a press release.