(a) Is it more usual for the financing needs of these types of corporates to be satisfied out of capital (equity) raisings; retained earnings; or external borrowings?

Traditionally external borrowings have been most usual.

(b) What are the main sources for borrowing for these types of corporates?

Banks.

(c) Is there significant competition among lenders and significant choice of sources for borrowing available to these types of corporates?

Yes.

(d)What is the present average rate of interest payable in respect of unsecured and secured debt?

As of November 1, 1998, long term prime rate is 2.3% and short term prime rate 1.5%. Premium over prime rate depends on borrower's credit.

(e) Is finance generally available for long, medium and short-term borrowings?

Yes. However, many banks tend to take very conservative attitude in providing loans.

(a) What part does the central bank of this economy play in the regulation of the banking and finance sector?

Role of the Central Bank

Bank of Japan monitors financial conditions of banks and securities corporations which hold current accounts with Bank of Japan by various methods including regular examinations. The relevant divisions of the Ministry of Finance, now called as the Financial Supervisory Agency havealso inspected banks and financial institutions regularly.

 

Would it intervene or seek to influence the outcome or course of events if, for example a large corporate with debt exposure to a number of banks was in financial difficulty?

Intervention

Bank of Japan has sought to influence the course of events in the case of financial difficulty of banks and other large corporations (mainly banks) from the viewpoint of ensuring financial stability.

(b) Is there any tradition in this economy for a 'main' or 'house' or 'lead' bank to become involved as a chief negotiator or leader in the case of the financial difficulty or insolvency of a large corporate borrower with debt exposure to a number of banks?

Yes. It is called as a "main bank".

(a) Is assessment or analysis of lending risk widely practised in this economy?

Yes.

(b) If so, does the average lending bank make adequate assessment of risk analysis when contemplating lending to a corporate borrower?

Yes. Assessment of risk analysis is made from various viewpoints. Banks usually lend money to large corporations on no-security basis. Traditional risk analysis in Japan has put more stress on assessment of land and buildings. In the future more stress on cash-flow of a project may be being sought.

(c) Would it be usual or common for a lending bank to regularly monitor the financial performance of a corporate borrower?

Yes.

(d) Would it be usual or common for a lending bank to be regularly supplied with copies of the financial statements of a corporate borrower?

Yes.

(a) Is there a significant source of foreign bank lending in this economy?

No.

(b) If so, is it usual for this funding to be provided by the foreign bank/s alone or in combination with funding from local or domestic bank/s?

Not applicable.

(c) Are you able to detect whether there are significant differences in approach and funding terms when a foreign bank is involved in the lending (as compared with a purely local or domestic funding)?

No.

(d) If so, what are the main differences?

Not applicable.

(a) Is 'related' or 'exclusive' lending (ie where a corporate borrower and a bank have an established commercial relationship such that only that lender is looked to as the source of borrowing by the corporate borrower) common in this economy?

There is a bank called as the Main Bank for each corporate borrower. However, its lending is not exclusive. A Main Bank only has the largest portion among all lenders to the corporate borrower.

(b) If no, what effect does this have if the corporate borrower is in financial difficulty or is insolvent?

If the corporate borrower is in financial difficulty, it usually consult with its main bank and asks it for financial supports. Its main bank will take a leading role in making a restructuring plan.

(a) Is 'syndicated' lending (ie where a group of banks or financial institutions join together to provide funding for a corporate borrower) common in this economy?

With respect to domestic lending it is not common. However it is common in international lending.

(b) If so:

(i) does a lead bank perform the role of 'agent' on behalf of all the lenders; and/or

Yes.

(ii) is the concept of a 'trustee' (or similar) for a syndicate of banks (ie where the 'trustee' holds any security for the syndicated funding on trust for the syndicate of banks) known and/or practised in this economy?

Yes.

(iii) if the corporate borrower is in financial difficulty or is insolvent what function does the 'agent' or 'trustee' perform?

If the corporate borrower is in financial difficulty, the agent act in accordance with the provisions of the Loan Agreement to declare its default and to enforce the Lenders' right uniformly.

(a) Is the concept known as 'debt subordination' (ie, a contractual arrangement between lenders in which there are 'layers' of 'senior' and 'junior' debt and which has the effect of postponing repayment of the 'junior' debt until payment has been made of the 'senior' debt) recognised and practised in this economy?

No. Subordinated bonds have been issued by large banks in Japan to satisfy the BIS requirement

(b) If so, is debt subordination recognised and/or enforced under the insolvency regime of this economy?

Subordinated bonds will be recognized under Japanese bankruptcy law, if bondholders of such bonds are entitled to receive dividends in the procedure only after all general creditors have received all payments, although the nature of subordination is not common in Japan.

(a) Is it permissible for banks to own equity in a corporate borrower?

Yes. However it is restricted within 5 % of the issued shares of a domestic corporation.

(b) If so, is it permissible for a bank to convert debt to equity?

Yes.

(c) Are there instances where this has in fact occurred, particularly in the context of either:

(i) in the context of an 'informal work out' as a result of the insolvency or approaching insolvency of a corporate borrower; or

No.

(ii) in the context of a formal insolvency administration of a corporate borrower?

No.

(d) In such a case, is it usual for the bank to be then represented on the management or board of the corporate borrower?

Not applicable.

(a) Is there a market for 'debt trading' (ie, where a bank might sell or trade the debt owed to it by a corporate borrower) in this economy?

Yes.

(b) If so, is debt trading common in this economy, particularly where the corporate borrower is insolvent or near insolvent?

Debt trading is not common where the corporate borrower is insolvent.

(a) Is the concept of a third party 'guarantee' (as distinct from a security over property) to support corporate borrowing known and practised in this economy?

Yes.

(b) Is there a law which regulates the power to take or give a guarantee?

No special law.

(c) Is it common or usual for corporate borrowing to be supported by guarantee/s?

With respect to a large corporation it is not common, while with respect to a medium or small company it is very common.

(d) If so, are these guarantees usually taken from owners/directors of the corporate borrower; from other corporates associated with the corporate borrower (eg subsidiaries or holding company); or from unrelated third parties?

Guarantees are taken from a main owner of the corporate borroweror a holding company thereof.

(e) Is there a law which regulates the enforcement of guarantees?

No special law.

(f) Is it easy or difficult in practice to enforce guarantee obligations?

It is easy.

(g) Is it usual to require that a guarantor should give security over the property of the guarantor as an additional comfort to the lender?

With respect to a medium or small company it is usual.

(h) Does the insolvency of a corporate borrower have any effect on the enforcement of a guarantee?

No. The enforcement of a guarantee is outside insolvency procedures of the corporate borrower.