New corporate bond offerings often go partially unsold without the knowledge of issuers. JSDA is reportedly considering requiring underwriters to disclose investor information to issuers.
A JSDA (Japan Securities Dealers Association) working group is planning to create new guidelines to improve transparency in corporate bond issuance, reports Bloomberg.
In a 17 June meeting, working group members are said to have discussed measures to address the issue of new corporate bond offerings often going partially unsold without the knowledge of issuers.
Critics argue that the practice impedes the proper functioning of Japan’s debt market, concealing the lack of demand and allowing underwriters to sell leftover securities to preferred clients at a cheaper price later, to the detriment of earlier investors.
This may be addressed by requiring underwriters to disclose certain information to issuers including names of investors and the amounts of bonds they bought, where the underwriters would be subject to punishments for breaches.
“We are discussing corporate bond underwriting procedures such as disclosing demand and buyers to issuers,” said Takamune Miyawaki, a member of the organising committee for the working group, in the Bloomberg report.
Based on Bloomberg analysis of unsold bonds in Japan, at least 19% percent of bonds issued in the fiscal year ended March 2019 were unsold, while 14% remained unsold the following financial year.
For April 2020 alone, 28% of bonds went unsold, as demand dropped further due to the Covid-19 pandemic.