JAPAN Law and Practice Contributed by: Hiroki Aoyama, Yuki Matsuda and Shuhei Takaishi, Mori Hamada
tured transactions such as leveraged buyouts and real estate acquisitions. See 1.3 The High-Yield Market . Mezzanine financing can be structured by means of a contractual subordination structure, as described in 5.7 Rules Governing the Priority of Competing Security Interests . Therefore, HoldCo structures (ie, structural subordination which involves borrowing entities at different levels, where the subsidiary bor- rows senior debt and the parent borrows subordinated debt) are not required to accomplish subordination of a loan. However, recently, in the loan market in Japan, some sponsors seek to benefit from higher leverage at the sponsor level by taking out HoldCo loans; par- ticularly in leveraged buyouts. Because the use of HoldCo structures in Japan is relatively new, parties are relatively flexible in negotiations on the terms and structures, as compared to more traditional types of transactions. 1.6 ESG/Sustainability-Linked Lending The Ministry of the Environment of Japan (MOE) devel- oped the “Green Loan and Sustainability-Linked Loan Guidelines 2020” (as amended, the “MOE Guidelines”) in March 2020, which were prepared based on the globally accepted principles published by internation- al loan market associations. The MOE Guidelines pro- vide the basic framework for engaging in green loans and sustainability-linked loans in practice. Through the continuous updating of the guidelines to reflect precedents and dialogue with market participants, the foundation for the promotion and growth of green loans and sustainability-linked loans is developing in Japan. While there are still some areas that require further discussion and improvement (including the establish- ment of the setting and evaluation methods of the sustainability performance targets (SPTs), expansion and implementation of information disclosure stand- ards and systems, as well as tackling “green wash” or “sustainability wash”), it is expected that ESG and sustainability lending will make significant progress, backed by the large-scale financial resources avail- able in the indirect finance market in Japan. Some publicly available reports indicate that ESG investments, including sustainability-linked lending,
are prevalent in various industrial sectors, such as real estate, energy and transportation.
2. Authorisation 2.1 Providing Financing to a Company A lender who makes a loan in Japan must have a licence under Japanese regulation if that loan is made as part of its money-lending business, subject to cer- tain exemptions (such as intra-group lending). The licence requirement will be satisfied if the lender is licensed as a bank or a Japanese branch of a foreign bank, or if it is registered as a money lender. 3. Structuring and Documentation 3.1 Restrictions on Foreign Lenders Providing Loans Provided that foreign lenders abide by the licence requirement described in 2.1 Providing Financing to a Company , there are no further material restrictions applicable only to foreign lenders. If a foreign lender cannot abide by the licence requirement, it may con- sider subscribing bonds rather than making loans. 3.2 Restrictions on Foreign Lenders Receiving Security There are no material restrictions on receiving secu- rity or guarantees that apply only to foreign lenders. For further information on the enforcement of secu- rity interests by foreign lenders, see 6.4 A Foreign Lender’s Ability to Enforce Its Rights . 3.3 Restrictions and Controls on Foreign Currency Exchange The Foreign Exchange and Foreign Trade Act sets out the Japanese policy regarding foreign currency exchange. As far as normal international lending is concerned, there are certain post facto reporting requirements. 3.4 Restrictions on the Borrower’s Use of Proceeds There are no general regulations that restrict the use of loan proceeds. However, financial institutions are regulated under the Criminal Proceeds Transfer Pre-
259 CHAMBERS.COM
Powered by FlippingBook