Over the past two columns, I have explored the “gap in dialect” between global sponsors and Japanese lenders regarding risk allocation and exit strategies. In this final installment, I look at a third recurring misalignment: the mismatch between regulatory timelines and project liquidity requirements.
Under Japan’s Foreign Exchange and Foreign Trade Act (FEFTA), foreign investments in designated sectors—which include power and energy storage—can trigger prior notification requirements and a statutory waiting period of 30 days. While most global sponsors anticipate this during the initial acquisition or development phase, a key point is that these requirements can also apply to subsequent emergency funding actions. This creates a potential liquidity trap.
Many standard finance documents assume that if a sponsor has liquidity, an equity cure or sponsor support action can be executed quickly, often within 10 to 20 business days. However, in a FEFTA-impacted scenario, a sponsor may have the funds and the intent to support the project yet may be legally unable to inject the capital within the required cure period due to the statutory waiting timeline. This mismatch creates a purely technical but very real risk of default, leading to avoidable waiver processes and credit committee fatigue.
Assuring lenders that “we can inject equity if needed” may not be sufficient in Japan unless you can prove the capital can be deployed within a legally available timeline, but this issue is solvable if planned for in advance.
Sponsors should negotiate cure mechanics with the statutory timeline in mind, which may include requesting longer cure periods where appropriate. It is also effective to build immediate liquidity bridges, such as prefunded reserves, or to design viable domestic funding routes that are consistent with the project’s holding structure.
Documenting a clear operational playbook—detailing who triggers the cure, which accounts are used, and what funds are immediately deployable—provides lenders with the structural clarity they require.
When misalignments over risk, exit strategies, or regulatory timelines surface only during the final documentation phase, they cost time, money, and deal momentum. The most efficient approach is to address bankability upstream at the term sheet and due diligence stages by translating global investment logic into a structure that Japanese lenders can approve with confidence.
Editor’s note: To help global sponsors and developers stress-test their structures against local expectations, TRE Legal has prepared a Bankability Briefing Note, which includes a Day-One Bankability Diagnostic Checklist. Readers interested in receiving the full PDF, please contact Keigo Kubo directly.
Disclaimer: This article is provided for general informational purposes only and does not constitute legal advice. Please seek specific advice for your particular situation.
