Japan Industry Group May Penalize Banks Breaking Debt Sale Rules
Japan Industry Group May Penalize Banks Breaking Debt Sale Rules
(Bloomberg) -- A Japanese financial industry group is planning to craft guidelines to boost transparency in the nation’s corporate bond issuance market, where new offerings often go partially unsold without the knowledge of issuers.
Members of the Japan Securities Dealers Association’s working group on measures to increase transparency discussed setting up guidelines to help with the issue, according to minutes of last week’s meeting that were seen by Bloomberg. The group’s fourth meeting looked at steps such as making underwriters disclose investors’ information to issuers including names and the amount of bonds bought. The minutes haven’t been made public.
Underwriters who breach the guidelines may face punishments, though specifics haven’t been decided, according to people familiar with the matter.
“We are discussing corporate bond underwriting procedures such as disclosing demand and buyers to issuers,” said Takamune Miyawaki, a member of the organizing committee for the working group, acknowledging that it held the meeting on June 17.
Improved transparency in the market may help cut back on the problem of unsold corporate bonds, a practice that critics say impedes the proper functioning of Japan’s debt market. The current obscurity on lack of demand can allow for underwriters to sell leftover securities to some preferred clients at a cheaper price later, to the detriment of investors who paid more for the bond at the initial offering.
In a recent example, parts of Honda Finance Corp.’s three-year notes were left unsold this month, according to some people with knowledge of the deal, who asked not to be identified because it’s a sensitive topic. However, the underwriters told the company the bonds were sold out, according to an official in its finance department.
Bloomberg News has been tracking unsold bonds in Japan since July 2017, obtaining information by interviewing issuers, investors and underwriters. A total of at least 19% of bonds issued in the fiscal year ended March 2019 were unsold, while 14% remained unsold the following financial year. For April 2020 alone, when demand dropped due to the Covid-19 pandemic, the rate jumped to 28%.
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