Overview

Convertible Bonds

Convertible bonds are bonds that can be converted to shares at the conversion price. In other words, the holders of convertible bonds can get the stock of the company of the issuer of convertible bonds at the conversion price*.

*The conversion price is the price per share to be issued upon conversion. For example, if you convert JPY 1 million worth of convertible bonds at the conversion price of JPY 10,000, you will obtain 100 shares.

The conversion price is usually determined before issuance, however, some convertible bonds may have clauses that allow adjustments to the conversion price within a certain period after issuance.

Characteristics

Convertible bonds can be converted to stock at the conversion price.
Therefore, in general, when the stock price rises, you can expect to benefit from price gains in its convertible bonds. Since convertible bonds come with the added feature of conversion into stock, it is typical for convertible bonds to have lower coupon rates than straight bonds.
In the case of interest-bearing bonds, you will receive regular interest payments. In addition, if you hold them to maturity, you will be able to redeem them at par value. Therefore, even if the stock price drops significantly, the change in the value of the convertible bonds will be relatively small.

Listing

Initial Listing

The criteria for listing examination of convertible bonds are as follows.

• The issuer is a listed company
• Total nominal amount is JPY 2 billion or more
• The conditions of exercise of subscription warrants are not deemed inappropriate

Listing Supervision

Listing supervision of convertible bonds is largely focused on the exercise of subscription warrants associated with the convertible bonds.
When a listed convertible bond is exercised, there will be a decrease in the total listed nominal amount and an increase in the number of listed shares of the underlying stock at the same time.
Therefore, TSE receives monthly reports on exercise and changes the total listed nominal amount and the number of listed shares.
Issuers also report redemptions, retirement by purchase, changes in the conversion price, and other significant events to TSE.

Delisting

Convertible bonds will be delisted in the following cases.

• End of exercise period
• Total listed nominal amount falls below JPY 300 million
• Underlying stock is subject to delisting

Delisting date pertaining to the arrival of the final redemption date or expiration of the exercise period is as follows.

• 3 days (excluding non-business days) before the final day of the period when exercise for the issue are handled by the designated book-entry transfer institution. (Rule 917, Item 3 of the Enforcement Rules for Securities Listing Regulations)

Criteria for Listing Examination

Newly issued convertible bond

1. An issuer of a security for which an initial listing application is made is a listed company; and
2. A security for which an initial listing application is made satisfies the following a. through e.:

a.The total nominal amount of a convertible bond is JPY 2 billion or more;

b.The conditions of exercise of subscription warrants are not deemed inappropriate pursuant to the provisions of the Enforcement Rules;

1. Where such security is a convertible bond which is not handled in the book-entry transfer operation of the designated book-entry transfer institution, the form of the actual certificate of a convertible bond complies with the requirements specified by the Enforcement Rules or a resolution has been adopted at the board of directors such that the actual certificate of a convertible bond will be prepared in the form in conformity with such requirements;
2. Where such security is a convertible bond that can be handled in the book-entry transfer operation of a designated book-entry transfer institution, such security is subject to the book-entry transfer operation of the designated book-entry transferinstitution, or is likely to be so by the time of listing;
3. Where such security is a convertible bond that can be handled in the book-entry transfer operation of a designated book-entry transfer institution, the amount of face value shall be any of JPY 5million, JPY 4 million, JPY 3 million , JPY 2 million, JPY 1 million, JPY 500,000, or JPY 100,000

Delisting Criteria

1. Where an issuer carries out a material breach concerning a listing agreement pertaining to a convertible bond or where an issuer ceases to become a party to such listing agreement;
2. Where a stock, etc. issued falls under any of the criteria referenced in Rules 601 through 604-5 (excluding cases falling under the following item); or
3. Where a listed convertible bond falls under any of the following items, it shall be delisted.

• Where the total listed nominal amount becomes less than JPY 300 million by the day a month before the day on which the final redemption date arrives;
• Where the exercise period for a subscription warrant arrives at maturity;
• Where an issuer of a listed convertible bond loses the right of benefit of term with respect to such security;
• Where such issue is a convertible bond that can be handled in the book-entry transfer operation of a designated book-entry transfer institution, when such issue ceases to be subject to the book-entry transfer operation of the designated book-entry transfer institution;

Delisting date

The arrival of the final redemption date or the expiration of the exercise period

3 days (excluding non-business days) before the final day of the period when the bond may be subject to the book-entry transfer operation by a designated book-entry transfer institution.

In the case of delisting other than the above

The day when 1 month have lapsed from the day following the day when the decision is made by the Exchange to delist such listed bond; provided, however, the same shall not apply where the Exchange deems it necessary to delist such bond promptly.

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