What are Bond-Type Class Shares?
"Bond-type class shares" is the common term for a class of stock listed on Tokyo Stock Exchange as preferred stocks, which, as products, are similar to corporate bonds. Bond-type class shares generally have the following characteristics.
(note)
- ･The following is a description of the general characteristics of bond-type class shares listed as a type of non-participating preferred stock, but some issues may have different characteristics, risks, etc. For details on specific issues, please refer to the website of the listed company issuing the issue or the securities company handling the issue.
- ･Even if a bond-type class share does not have the following characteristics, it may be eligible for listing under the system.
Characteristics
The main characteristics of bond-type class shares are, in general, as follows.
Preferred Dividends
- The holders of bond-type class shares are paid dividends of surplus prior to common shareholders (preferred shares).
- The amount paid to common shareholders for dividends of surplus is determined by the general shareholders meeting for each dividend, but the amount for dividends of surplus paid to the shareholders of the bond-type class stock is predetermined and no amount beyond that is distributed (non-participating).
Voting Rights
- As a general rule, shareholders of bond-type class shares do not have the right to vote at general shareholders meetings.
- Pursuant to the Companies Act or the Articles of Incorporation, the shareholders have the right to vote at general shareholders meetings for class shares.
Acquisition Clause
- Bond-type class shares are subject to an acquisition clause, and in an acquisition, the shares may be acquired by the issuing company for a cash equivalent to the issue price.
- Acquisition clauses may allow the issuing company to acquire the shares if it decides after a specified period of time has elapsed since issuance, or based on other details that allow the issuing company to make an acquisition.
Risks
The main risks associated with corporate bond-type class shares are, in general, as follows. Investors should pay close attention to these risks when investing.
Risks as Shares
- Risks related to dividends
Dividends to the holders of bond-type class shares take priority over dividends to common shareholders, but have less priority than payments to corporate bondholders. Therefore, if there is no amount available for distribution, dividends may be paid only in part or not at all, and the expected return may not be received.
- Risks related to stock price
As their characteristics are similar to corporate bonds, the share price of corporate bond-type class shares is mainly linked to market interest rates and the level of confidence investors have in the issuing company, and may move differently than the share price of common stock. Therefore, regardless of the share price of common stock, the share price may decline significantly depending on market interest rates and levels of confidence in the issuing company.
- Risks related to liquidity
Since dividends and residual assets are not distributed to the shareholders of bond-type class shares beyond a predetermined amount, frequent trading of these shares, like which is seen in common stocks for the purpose of capital gains, is not expected, and it may not be possible to trade them at the desired share price or timing.
Risks Related to Acquisition
- Risks associated with any acquisition by the issuer
An acquisition of bond-type class shares (e.g., the issuing company decides to acquire the shares after a specified period of time has elapsed since issuance) may result in the acquisition of the bond-type class shares by the issuing company in exchange for the cash equivalent to the issue price.
As a result, there is a risk of not receiving dividends of surplus after the acquisition and not receiving the expected return, and there is a risk of incurring a loss if the bond-type class shares were purchased at an amount higher than the issue price.
- Risks associated with cases where there is no acquisition by the issuer
Bond-type class shares are acquired for a cash equivalent to the issue price upon scheduled acquisitions. However, a large rise in interest rates or significant deterioration in the financial condition of the issuing company may prevent acquisitions from taking place at the timing expected by the bond-type shareholder. In such cases, there is a possibility that the share price of bond-type class shares may fall substantially.
- Taxation in acquisitions by the issuing company (for individual investors)
If an issuing company acquires bond-type class shares, depending on the amount of capital of the issuing company, and the acquisition and purchase price of the bond-type class shares, there is a risk that consent dividends may be used or profits may be transferred, which may require procedures under tax laws.
Close