The Samurai bonds issued by the US will not be subject to US withholding tax for the next two years because of the TEFRA Rule. In compliance with the US’s decision, the Japan Securities Depository Center, Inc. will convert the already-issued bonds into book-entry form.
JASDEC has released a conversion schedule listing the interest payment date for each bond. The bulk conversion period is from March 2007 to August 2007. The individual conversion period runs from March 2007 to December 2007 for bearer form and July 2007 to December 2007 for bonds in registered form.
“Samurai bonds issued after January 2007 will be treated as the bonds subject to the US FTRO Rules,” says a spokesman from Mizuho Corporate Bank. “If this rule is applied, the account management institutions must report to JASDEC before the first payment date, and once a year afterwards, that their clients with US residency are not holding any Samurai bonds issued by US entities. But, JASDEC explains that, in the actual operations, it can be handled in a same way as in the TEFRA Rule.”
The FTRO Rule will only apply for bonds issued until the end of 2008, according to JASDEC. Market players will join the discussion on processing guidelines for Samurai bonds issued after 2009.