Steven M. Dickinson ^*
& Takeo Kosugi ^{* *}

Appendix F

POLICY ON DOMESTICALLY ISSUED COMMERCIAL PAPER (DOMESTIC CP) (Kokunai de Hakkosareru Komasharu Pepa (Kokunai CP) ni Kansuru Kangaekata), Ministry of Finance (1987), reprinted inT. AMAYA, UGOKIDASHITA CP (CP Begins Moving) 156-58 (1988)

I. Standard for Eligibility

Companies listed on the first section [of the Tokyo Stock Exchange] which fall under 1, 2 or 3 below may issue "domestic CP":

1. Companies that meet the following standards:

(Application Method)

For companies with net assets of ¥110 billion or more, the net assets element must be met along with at least four of the other five elements.

For companies with net assets of less than ¥110 billion, the net assets and the net worth ratio elements must be met along with at least three of the other four elements.

2. Companies which have obtained a rating of AA or above for unsecured publicly-issued straight corporate bonds, or which have net assets of ¥55 billion or more and have obtained a rating of A or above.

3. Companies which are statutorily permitted to issue general mortgage bonds.

II. Standard for the Establishment of Backup Lines, etc.

Domestic CP should be accompanied by either a backup line or a guarantee from a financial institution (hereinafter "Backup Lines, etc."). However, for companies falling under 1, 2 or 3 below, the establishment of Backup Lines, etc., shall be optional:

1. Companies which have obtained an AAA rating for unsecured publicly-issued straight corporate bonds, or which have net assets of ¥300 billion or more and have obtained a rating of AA or above.

2. Companies which meet the following criteria:

a. Net assets: ¥200 billion or more.

b. Liquid assets: ¥200 billion yen or more.

c. Liquidity ratio: 100% or more.

d. Current ratio: 80% or more.

3. Companies which are statutorily permitted to issue general mortgage bonds.

III. Supplementary Provisions

1. Concerning the standards for eligibility and for the establishment of Backup Lines, etc.:

(1) The standards for eligibility and for the establishment of backup lines, etc. shall be applied for each issuance of domestic CP.

(2) The data for making the determination shall be taken from the most recent published annual securities report, and in principle shall be on a consolidated basis. However, it shall also be permissible to present the unconsolidated financial returns of the company itself in addition to the consolidated returns, so long as this does not present any special problems. In addition, for companies which publish reports on a biannual basis, the ratio of business income to total capital employed and the interest coverage ratio shall be calculated on the most recent two-year average, while the dividends per share of stock shall be calculated for the past ten years, rather than the past five years as stated in the text.

(3) Companies with ¥150 billion or more of net assets which are permitted to issue straight corporate bonds secured by an enterprise mortgage shall be permitted in principle to issue domestic CP, notwithstanding the provisions of I.

(4) In light of their special business characteristics, trading companies which meet the criteria below shall be permitted to issue domestic CP, notwithstanding the provisions of I:

a. Net assets: ¥150 billion yen or more.

b. Net worth ratio: 3.0 % or more (but with a liquidity ratio of 100% or more).

c. Net assets multiplier: 1.5 times or more.

d. Ratio of business profits to total capital employed: 5% or more.

e. Dividends per share of stock: Dividends for the last five years, and ¥5 per share for the past 3 years.

(Method of Application)

The net assets, net worth ratio and dividends elements must be met, along with one of the two other elements.

(5) In addition to the standards set out above, in making the determination of eligibility, an overall consideration of factors such as changes in performance (particularly with respect to movement or a decline in the various indicators as compared to reports from the past several years), past performance, and rank in the relevant business field shall be made.

2. Miscellaneous

(1) These standards shall become effective on November 20, 1987.

(2) Appropriate reappraisal of these standards shall be made in the event of changes in economic or financial conditions.

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