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Rights issues: A crucial test case in Japan

The outcome of Japan’s first rights issue has critical implications for the market.

Takara Leben, a Japanese condominium sales company, is attempting to make history by executing the country’s first rights issue in a move that could have implications out of all proportion to the deal’s relatively modest size. The deal, due to close at the time of writing in late May, will be the first rights issue by a Japanese company under new regulations issued by the Tokyo Stock Exchange that aim to make rights issues easier for Japanese companies to undertake.

The timing of this test of the new model is significant given the looming Basle III regulations on bank capital. Japan’s banks have been among the world’s largest issuers of equity in the past two years, with the three biggest raising more than $20 billion between them. Under Basle III they are expected to be required to raise yet more capital. While most big banks worldwide have been doing so via shareholder-friendly right issues in the past couple of years, Japan’s banks have not been able to follow suit because the previous regulations were too rigid. As an investment banker in Tokyo points out to Euromoney, Japan and the US are the only major developed markets that have not seen large rights issues by financial institutions since the collapse of Lehman Brothers.

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