Capital Supply for Growth Companies: Council Working Group Meeting 2
Overview
At its second meeting, the Working Group on Capital Supply for Growth Companies discussed how to revise regulations under the Money Lending Business Act for loans to professional borrowers, and the registration and disclosure systems under the Nonbank Bond Act, in light of private equity and venture debt practices. Members expressed hopes for more diverse funding, while also raising issues concerning the scope of eligible borrowers, supervision, investor and borrower protection, and risk monitoring.
Key points
- The Japan Private Equity Association proposed making regulations more flexible for loans to professional investors and funds.
- The secretariat raised as issues easing regulations on loans to professional borrowers by referring to the borrower criteria in the Commitment Line Act, and exempting commitment fees from treatment as deemed interest.
- The Fintech Association proposed easing the registration requirements under the Nonbank Bond Act and said it would maintain its own disclosure system.
- Many members supported a review, while others said the scope of eligible borrowers, supervision, information disclosure, and risk management should continue to be examined.
Overview
The meeting featured association reports on the current state and role of private equity, mezzanine loans, and venture debt, along with an explanation of potential revisions to the Money Lending Business Act and the Nonbank Bond Act.
The secretariat explained that the Money Lending Business Act is intended for lending to consumers and small and medium-sized businesses, while lending to large companies and others, such as LBO loans, has different characteristics. It also noted that the Nonbank Bond Act was enacted in 1999 and requires money lenders issuing bonds to register and disclose information.
Impact
The Japan Private Equity Association said that if mezzanine financing had not been available, Baycurrent's growth, employment, and contributions to sports and society might not have been realized.
The Fintech Association explained that venture debt can promote the creation of new industries that would previously have been weeded out, and can contribute to developing regional startups, forming industrial clusters, and diversifying Japan's economic centers.
Details
The secretariat proposed using entities covered by the Commitment Line Act as the criteria for professional borrowers, and raised as issues making entry requirements, conduct rules on document delivery and debt collection, and restrictions on assignment of claims more flexible. It also discussed government supervision of lenders serving only professional borrowers, and how conduct rules should apply when lenders that also serve other borrowers make loans to professional borrowers.
The Fintech Association proposed lowering the capital requirement under the Nonbank Bond Act and abolishing its registration system, while maintaining its own disclosure system. The secretariat also proposed requiring money lenders that issue bonds or file securities reports to disclose their lending status and nonperforming loans.
Members commented on how to expand the scope of borrowers to include funds and startups, and how to ensure registration, supervision, and information disclosure after deregulation. Members supported exempting commitment fees from treatment as deemed interest, while also calling for a framework to monitor the accumulation of risks and market transparency, as well as a review after the system changes. The meeting reached no conclusions and agreed to continue deliberations.