Bond East Japan Rail Co. 4.5% ( XS0241265445 ) in GBP

East Japan Rail Co.

100 % ▼

Japan

XS0241265445 ( in GBP )

4.5% per year ( payment 1 time a year)

24/01/2036

Prospectus brochure of the bond East Japan Railway Co XS0241265445 en GBP 4.5%, maturity 24/01/2036

50 000 GBP

25 000 000 GBP

25/01/2027 ( In 316 days )

East Japan Railway Company (JR East) is one of the seven companies that resulted from the privatization of Japanese National Railways in 1987, operating passenger rail services in the eastern region of Japan, including the Shinkansen bullet train lines.

The Bond issued by East Japan Rail Co. ( Japan ) , in GBP, with the ISIN code XS0241265445, pays a coupon of 4.5% per year.
The coupons are paid 1 time per year and the Bond maturity is 24/01/2036

OFFERING CIRCULAR
EAST JAPAN RAILWAY COMPANY
(Incorporated with limited liability under the Commercial Code of Japan)
GBP250,000,000
4.5 per cent. Bonds due 2036
ISSUE PRICE 99.61 PER CENT.
The GBP250,000,000 4.5 per cent. Bonds due 2036 (the ``Bonds'') of East Japan Railway Company (the ``Company''), which
will be in bearer form in the denomination of GBP50,000 each, will rank as direct, unsecured and unconditional obligations of
the Company.
Payments of principal of and interest on the Bonds will be made without deduction for or on account of Japanese taxes to the
extent set out herein. See ``Japanese Taxation''. Interest on the Bonds will accrue from 25 January 2006 at the rate of 4.5 per
cent. per annum and will be payable annually in arrear on 25 January, as described in ``Terms and Conditions of the Bonds
Interest''.
The Bonds will mature on 25 January 2036 but may be redeemed earlier in whole but not in part at their principal amount
together with accrued interest at the option of the Company at any time in the event of certain Japanese taxes being imposed
on payments in respect of the Bonds. See ``Terms and Conditions of the Bonds Redemption and Purchase''.
Application has been made to list the Bonds on the official list of the Luxembourg Stock Exchange and to admit the Bonds to
trading on the Euro MTF market (the ``Euro MTF'') of the Luxembourg Stock Exchange.
The Bonds have not been, and will not be, registered under the United States Securities Act of 1933, as amended (the
``Securities Act'') and are subject to United States tax law requirements. The Bonds are being offered outside the United States
by the Managers (as defined in ``Subscription and Sale'') in accordance with Regulation S under the Securities Act
(``Regulation S''), and may not be offered, sold or delivered within the United States or to, or for the account or benefit of, U.S.
persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities
Act.
The Bonds will initially be represented on issue by a Temporary Global Bond, without interest coupons, which will be
deposited with a common depositary for Clearstream Banking, socie´te´ anonyme (``Clearstream, Luxembourg'') and Euroclear
Bank S.A./N.V., as operator of the Euroclear System (``Euroclear'') on 25 January 2006. The Temporary Global Bond will be
exchangeable for interests in a Permanent Global Bond, without interest coupons, on or after a date which is expected to be
7 March 2006 upon certification as to non-U.S. beneficial ownership. The Permanent Global Bond will be exchangeable for
definitive Bonds with coupons attached in the limited circumstances set out in it. See ``Summary of Provisions relating to the
Bonds while in Global Form''.
The Bonds have been rated Aa2 by Moody's Investors Service, Inc. (``Moody's'') and AA- by Standard & Poor's Rating
Services, a division of The McGraw-Hill Companies, Inc. (``Standard & Poor's''). A credit rating is not a recommendation to
buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the relevant rating
organisation.
Lead Managers
BNP PARIBAS
MIZUHO INTERNATIONAL PLC
Sole Bookrunner
BNP PARIBAS
Managers
BARCLAYS CAPITAL
MERRILL LYNCH INTERNATIONAL
MITSUBISHI UFJ SECURITIES INTERNATIONAL PLC
UBS INVESTMENT BANK
The date of this Offering Circular is 20 January 2006.

The Company accepts responsibility for the information contained in this Offering Circular. To the best of the
knowledge and belief of the Company (the Company having taken all reasonable care to ensure that such is the
case), the information contained in this Offering Circular is in accordance with the facts and does not omit
anything likely to affect the import of such information.
The Company, having made all reasonable enquiries, confirms that this Offering Circular contains all
information with respect to the Company, the Company and its subsidiaries and affiliates taken as a whole (the
``Group'') and the Bonds which is material in the context of the issue and offering of the Bonds, the statements
contained in it relating to the Company and to the Group are in every material particular true and accurate and
not misleading, the opinions and intentions expressed in this Offering Circular with regard to the Company are
honestly held, have been reached after considering all relevant circumstances and are based on reasonable
assumptions, there are no other facts in relation to the Company, the Group or the Bonds the omission of which
would, in the context of the issue and offering of the Bonds, make any statement in this Offering Circular
misleading in any material respect and all reasonable enquiries have been made by the Company to ascertain
such facts and to verify the accuracy of all such information and statements.
This Offering Circular does not constitute an offer of, or an invitation by or on behalf of the Company or the
Managers, to subscribe for or purchase, any of the Bonds and may not be used for or in connection with an offer
or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorised or to any person
to whom it is unlawful to make such offer or solicitation. The distribution of this Offering Circular and the
offering of the Bonds in certain jurisdictions may be restricted by law. Persons into whose possession this
Offering Circular and any Bonds come are required by the Company and each of the Managers to inform
themselves about, and to observe, any such restrictions. In particular, the Bonds have not been and will not be
registered under the Securities Act and are subject to U.S. tax law requirements. Subject to certain exceptions,
the Bonds may not be offered or sold within the United States or to U.S. persons.
The Bonds have not been and will not be registered under the Securities and Exchange Law of Japan (Law No. 25
of 1948) (as amended) (the ``Securities and Exchange Law''). The Bonds may not be offered or sold in Japan or
to residents of Japan, except pursuant to an exemption from, or otherwise in compliance with, the Securities and
Exchange Law. Interest payments on the Bonds generally will be subject to Japanese withholding tax in
accordance with the Special Taxation Measures Law of Japan (Law No. 26 of 1957) (as amended) (the ``Special
Taxation Measures Law'') unless the holder establishes that such Bonds are held by or for the account of a
holder that is not an individual resident of Japan or a Japanese corporation for Japanese tax purposes or is a
designated Japanese financial institution described in Article 6 of the Special Taxation Measures Law. For a
description of certain further restrictions on offers and sales of the Bonds and the distribution of this Offering
Circular, see ``Subscription and Sale'' below.
No person has been authorised to give any information or to make any representation other than those contained
in this Offering Circular in connection with the issue or sale of the Bonds and, if given or made, such information
or representation must not be relied upon as having been authorised by the Company or the Managers. Neither
the delivery of this Offering Circular nor any sale made in connection herewith shall, under any circumstances,
create any implication that there has been no change in the affairs of the Company or the Group since the date of
this Offering Circular or that there has been no adverse change in the financial position of the Company or the
Group since the date of this Offering Circular.
In this Offering Circular, unless otherwise specified or the context otherwise requires, references to ``euro'',
``Euro'' and ``E'', are to the lawful currency of those members of the European Union which are participating in
the European Economic and Monetary Union pursuant to the Treaty on European Union, references to ``pounds
sterling'' and ``GBP'' are to United Kingdom pounds sterling, references to ``U.S. dollars'' and ``U.S.$'' are to
United States dollars and references to ``yen'' and ``¥'' are to Japanese yen.
Unless otherwise indicated herein or the context otherwise requires, the description of the business of the
Company in this Offering Circular is made on a consolidated basis.
In connection with this issue, BNP Paribas (the ``Stabilising Manager'') or any person acting for it may over-
allot Bonds or effect transactions with a view to supporting the market price of the Bonds at a level higher than
that which might otherwise prevail. However, there is no assurance that the Stabilising Manager (or any persons
acting on behalf of the Stabilising Manager) will undertake stabilisation action. Any stabilisation action may
begin on or after the date on which adequate public disclosure of the terms of the offer of the Bonds is made and,
if begun, may be ended at any time, but it must end no later than the earlier of 30 days after the issue date of the
Bonds and 60 days after the date of the allotment of the Bonds.
ii

FORWARD-LOOKING STATEMENTS
Many of the statements included in this Offering Circular contain forward-looking statements and
information identified by the use of terminology such as ``may'', ``might'', ``will'', ``expect'', ``intend'',
``plan'', ``estimate'', ``anticipate'', ``project'', ``believe'' or similar phrases. The Company bases these
statements on beliefs as well as assumptions made using information currently available to the Company.
As these statements reflect the Company's current views concerning future events, these statements involve
risks, uncertainties and assumptions. The Company's or the Group's actual future performance could
differ materially from these forward-looking statements. Important factors that could cause actual results
to differ from the Company's expectations include the factors discussed in ``Investment Considerations'',
``East Japan Railway Company Recent Business'', ``East Japan Railway Company Operations'' and
``East Japan Railway Company Capital Expenditure'', as well as other matters not yet known to the
Company or not currently considered material by the Company. The Company does not undertake to
revise forward-looking statements to reflect future events or circumstances. The Company cautions
prospective investors in the offering not to place undue reliance on these forward-looking statements. All
written and oral forward-looking statements attributable to the Company or persons acting on the
Company's behalf are qualified in their entirety by these cautionary statements.
DOCUMENTS INCORPORATED BY REFERENCE
This Offering Circular should be read and construed in conjunction with the audited consolidated annual financial
statements of the Company for the years ended 31 March 2004 and 2005, together in each case with the audit
report thereon, and the unaudited consolidated semi-annual financial statements of the Company for the six
months ended 30 September 2004 and 2005. Such documents shall be incorporated in, and form part of, this
Offering Circular, save that any statement contained in a document which is incorporated by reference herein
shall be modified or superseded for the purpose of this Offering Circular to the extent that a statement contained
herein modifies or supersedes such earlier statement (whether expressly, by implication or otherwise). Any
statement so modified or superseded shall not, except as so modified or superseded, constitute a part of this
Offering Circular.
Copies of all documents incorporated by reference herein will be available without charge from the specified
office of the listing agent in Luxembourg. References to ``this Offering Circular'' shall mean this document and
all of the documents incorporated by reference herein.
iii

TABLE OF CONTENTS
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INVESTMENT CONSIDERATIONS
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TERMS AND CONDITIONS OF THE BONDS ;
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SUMMARY OF PROVISIONS RELATING TO THE BONDS WHILE IN GLOBAL FORM
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USE OF PROCEEDS ;
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CAPITALISATION AND INDEBTEDNESS
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EAST JAPAN RAILWAY COMPANY ;
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MANAGEMENT
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SUBSIDIARIES AND AFFILIATES
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JAPANESE TAXATION
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SUBSCRIPTION AND SALE ;
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GENERAL INFORMATION ;
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iv

INVESTMENT CONSIDERATIONS
In addition to the information set forth elsewhere in this Offering Circular, prospective investors should carefully
evaluate the considerations described below before purchasing the Bonds.
Considerations Relating to the Company and its Business
A weak economic environment in Japan may adversely affect the Company's business
Throughout the 1990s and early 2000s, Japan's economy experienced prolonged weakness. In recent years, there
have been signs that Japan's economy is improving. However, the outlook for the Japanese economy remains
uncertain.
The Company's business, including its passenger railway operations and its non-transportation businesses, is
directly affected by overall economic conditions in its service area and throughout Japan. Examples include the
following:
r
leisure travel is affected by the amount of disposable income available to families and individuals
r
sales of commuter passes are affected by employment conditions and the ability of employers to pay all
or a portion of the cost of such passes
r
long-distance business travel by train, including the class of service used, and the occupancy rate of
business hotels are directly affected by the overall business environment
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retail sales in the Company's stations and shopping centres are affected by changes in consumer
spending
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rents and occupancy rates for office space are affected by changes in demand for space and
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revenues from advertising and publicity may be affected by cost reduction efforts of businesses.
Accordingly, the Company expects that opportunities to increase revenues from its operations in the future will
be limited if the Japanese economy is weak, and revenues may decrease in the future.
Demographic trends in Japan are expected to have an adverse effect on the Company's ability to increase or
maintain revenues
Life expectancy in Japan is the highest of the developed countries. At the same time, Japan's total fertility rate as
of calendar year 2004 was 1.29, significantly lower than the replacement rate of 2.08. As a result, Japan's
population is expected to begin declining after 2006 and its demographic makeup is already aging considerably,
although the population of Tokyo is projected to increase until around 2015. As of October 2004, it was estimated
that 19.5 per cent. of Japan's population was aged 65 or over, and this percentage is expected to reach 25 per cent.
in 2014. Demographic trends indicate that the number of persons between the ages of 15 and 64 has already
peaked in the Tokyo area and for Japan as a whole. Senior citizens typically do not commute regularly for work
or study, may have less disposable income and may experience greater physical difficulty in travelling,
particularly using means of mass transit. Accordingly, Japan's demographic trend is expected to have a long-term
adverse effect upon the ability of the Company to increase or maintain the operating revenues of its railway
operations. Although the Company is taking various steps to increase the attractiveness of its railway services to
senior citizens, such as improving accessibility by increasing the number of escalators and elevators in its stations
and offering special discount fares, there can be no assurance that such steps will be successful in increasing train
usage by senior citizens.
Competition related to the Company's passenger railway operations may adversely affect the Company's
business
In its passenger railway operations, the Company is subject to competition from other passenger railway
companies and from other modes of passenger transport.
r
In the Tokyo metropolitan area, the Company's principal competitors are other railway companies,
including an extensive subway network, private automobiles, buses and taxis. Competition from other
railway companies has increased recently due to the opening of new railway lines, including subway
lines, and may increase further in the future with the opening of new lines currently under construction,
extensions of existing lines and the offering of new through-service lines over tracks of more than one
company and other alliances between competitors. The principal factors influencing competition are
price, punctuality, speed, comfort, safety and frequency.
1

r
Shinkansen and intercity services compete principally with intercity bus services, private automobiles
and domestic air carriers. Competition with buses and automobiles has increased in recent years with the
construction of new expressways and could continue to increase in the future as a result of the opening
of new highways. The main factors of competition are price, travel time, line connections and
accessibility of service. In addition to direct competition in domestic long-distance travel from other
modes of passenger transportation, the Company is subject to competition in the form of demand for
leisure travel to foreign countries.
Increase in such or other competition may adversely affect the Company's business.
The Company could be adversely affected in the event of an accident or incident involving its railway system
An accident or incident involving the Company's railway operations, including a terrorist attack or natural
disaster, such as an earthquake, could involve repair or replacement of damaged tracks and railcars and their
consequential temporary or permanent loss from service, temporary or permanent discontinuation of railway
services and loss of revenues and significant potential claims by injured passengers and others. Although the
Company maintains liability insurance in amounts and of the type generally consistent with industry practice,
such coverage may not cover all claims and the amount of such coverage may not be adequate. As a result, the
Company may be forced to bear substantial losses from an accident. Substantial claims resulting from an accident
or incident not covered by the Company's insurance would harm the Company's business and financial results.
Moreover, any railroad accident or incident, even if fully insured, could cause a public perception that the
Company is less safe than other railway companies or alternative means of transportation, which would harm the
Company's business and reputation.
Changes in regulation may adversely affect the Company's railway business
The operation of passenger railway networks in Japan is subject to extensive regulation and supervision by the
Ministry of Land, Infrastructure and Transport (the ``MLIT''). The Company operates its railway business
pursuant to the permission of the MLIT under the Railway Business Law of 1986 (the ``Railway Business
Law''), to which all railway operators are subject. The Company needs the approval of the MLIT when setting its
maximum fares and must give prior notification for revisions to fares below such maximum level. The Company
must also give prior notification to the MLIT to terminate services and must obtain the approval of the MLIT to
construct new lines. In addition to the Railway Business Law, the Company was subject to regulation under the
Law Concerning the Passenger Railway Companies and the Japan Freight Railway Company of 1986 (the ``JR
Law''), which applies only to the JR Companies (as defined in ``East Japan Railway Company General''). Since
December 2001, the Company, Central Japan Railway Company and West Japan Railway Company became
generally excluded from the application of the JR Law. However, under the authority of the amendments to the
JR Law, the MLIT has issued guidelines to the three companies relating to certain matters, including cooperation
between JR Companies, fares for travel between the operating areas of different JR Passenger Companies (as
defined in ``East Japan Railway Company General''), appropriate maintenance of routes currently in operation
and the conduct of operations that may adversely affect the interests of small and medium-sized businesses. The
MLIT may also issue recommendations and orders when any of the three companies operate contrary to the
guidelines without justifiable reason. In a meeting of the House of Representatives' Committee on Land,
Infrastructure and Transport in May 2001, a high-level MLIT official stated, in connection with the proposed
amendments to the JR Law, that its ability to issue the guidelines was established so that the MLIT's influence
over the three companies will be minimal and that the MLIT will fully respect the individual management
decisions made by the companies when interpreting and applying the guidelines. While the Company does not
believe that the guidelines will hinder its management, there can be no assurance that future changes in laws,
regulations or MLIT's policy affecting the Company's business and those of its competitors will not adversely
affect the Company's financial condition or results of operations.
The Company regards passenger and employee safety as one of its highest priorities. Because of the importance it
places on safety, the Company invests significant resources in the safety of its operations and all of its facilities,
including tracks, stations and rolling stock. Prompted by safety concerns following a derailment during an
earthquake in Niigata, Japan in 2004 of the Joetsu Shinkansen and an April 2005 derailment accident that
disrupted the services of another railway operator, the Company has made a thorough review of its safety
measures and is enhancing its efforts to ensure passenger and employee safety. The Government may also tighten
or expand the safety regulations applicable to railway services in Japan. If such regulations require the level of
safety which significantly exceeds the level that the Company regards appropriate, the Company may incur
significant additional costs and expenditures for taking new safety measures.
2

Some sections of the Personal Information Protection Law, which impose obligations as to holding personal data,
came into effect on 1 April 2005. Although the Company has implemented measures to strictly manage and
protect personal information in accordance with this law, an intentional or unintentional disclosure of personal
information in possession by the Company could subject the Company to penalties, civil liabilities and adverse
publicity.
The Company relies heavily on computer and telecommunications systems to operate its business and any
failure of these systems could harm its business
The Company relies heavily on computers for coordination of scheduling and other aspects of its railway
operations as well as accounting and numerous other functions and also relies on its telecommunications network.
The Company's hardware and software may be damaged by human error, natural disasters, power loss, terrorism,
sabotage, computer viruses and other events. The operations of the Company may also be vulnerable to system
failures of other companies with whom such operations are closely linked, such as other railway operators, utility
providers, telecommunication service providers and financial institutions. Problems which may occur as a result
of system failures include:
r
incorrect recognition of train schedule or route control data, which could disable railway operations
r
system failures in ticketing, reservations and sales functions, which could cause significant confusion
and inconvenience to passengers and
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misrecognition of revenue, cost and other accounting data, which could result in significant interruptions
in the processing of the Company's financial information.
System failures could also reduce the attractiveness of the Company's services and could cause its customers to
choose alternative means of transportation. Such system-related problems could lead to increased expenses,
decreased revenues or may otherwise harm the Company's business.
There is no assurance that the Company will be able to continue increasing operating revenues from its non-
transportation businesses, which are important to its revenue growth overall
In recent years the Company's transportation business has not shown signs of growth, and the importance to the
Company of operating revenues generated by its non-transportation business segments has been growing. The
Company expects this trend to continue and is seeking to increase revenues from its non-transportation
businesses. Although the Company's non-transportation businesses generally involve utilisation of the
Company's railway assets, they involve a wide range of activities and competitive challenges that the
Company does not face in its core transportation business. The Company faces significant competition from a
wide variety of companies operating in the same or related businesses, such as hotel operators, advertising service
providers, retailers, shopping centre operators and credit card companies. Factors that may affect the future
performance of its non-transportation businesses include the Company's ability to:
r
generate increased revenues from its station retail outlets and restaurants commensurate with the
Company's investments in related station renovations
r
successfully manage the development of new shopping centres and office buildings, particularly large
projects such as its planned redevelopment of Tokyo station and its adjacent area which involve
significant capital expenditures and
r
successfully compete in its non-transportation businesses with companies that now or in the future
operate in the same or related businesses, including increased competition in the hotel industry which
could cause a decline in the Company's hotel occupancy rates or room charges.
The Company could encounter difficulties in servicing and reducing its substantial total long-term debt
The Company has substantial long-term debt and long-term liabilities incurred for purchase of railway facilities
(together, including the current portions thereof, ``total long-term debt''), the debt service on which requires a
substantial portion of the Company's operating cash flow. In connection with its establishment in 1987, the
Company assumed long-term debt (including the current portion) of the Japanese National Railways (the ``JNR'')
in the amount of ¥3,298.7 billion as of 1 April 1987. In addition, in 1991 the Company purchased Shinkansen
facilities for ¥3,107.0 billion and agreed to pay such purchase price in instalments. Although during the 18 years
since its inception, the Company has reduced its non-consolidated total long-term debt by ¥2,620.3 billion, its
total long-term debt remains substantial, totalling ¥3,785.4 billion on a non-consolidated basis and ¥3,833.1
billion on a consolidated basis at 31 March 2005. The Company believes that it has sufficient capital resources to
continue to reduce its total long-term debt. However, if the Company's operating cash flow declines, or if it is
3

unable to raise financing in amounts required, it may have insufficient funds to service its substantial total long-
term debt and to provide for its other capital requirements.
Increases in market interest rates could adversely affect the Company's results of operations
The Company's interest expense is significant, totalling ¥148.4 billion in the year ended 31 March 2005, almost
all of which accrued on its total long-term debt. The Company's interest expense has decreased over time due to
both the reduction of the amount of its total long-term debt and a generally steady reduction in the average rate of
interest paid on such debt. Furthermore, while most of the Company's long-term debt has fixed rates of interest,
the Company regularly refinances a significant portion of its long-term debt as it matures, and therefore increases
in market interest rates may increase its interest expense with respect to such refinancing. Adverse economic
conditions in Japan in recent years have been accompanied by unusually low market rates of interest, but market
rates will not necessarily be maintained at such low levels in the future, and such possible increases in interest
rates could adversely affect the Company's results of operations. However, the Company believes that changes in
market interest rates would have only a limited effect on the Company's interest expenses payable on its variable
rate liabilities incurred for the purchase of Shinkansen facilities because the interest rates on such liabilities are
linked to the funding costs of the Japan Railway Construction, Transport and Technology Agency (``JRTT'')
which are generally based on long-term borrowings with fixed interest rates.
There is no guarantee that liabilities of JRTT will not be imposed on the Company in the future
In the past, the Company has been required to assume certain liabilities inherited by Japanese National Railways
Settlement Corporation (``JNR Settlement Corporation''), one of the predecessors of JRTT, in connection with
the restructuring of JNR in 1987. In connection with the 1 April 1997 merger of the Japan Railway Group Mutual
Aid Association (the ``JR Mutual Aid Association'') with the national welfare pension pursuant to the Law
Partially Amending the Law Relating to the Welfare Pension Insurance, etc. enacted in June 1996, JNR
Settlement Corporation and the entities which succeeded to JNR's railway and other operations on 1 April 1987
including, among others, the JR Companies (``JNR Successor Entities'') assumed additional pension liabilities
reflecting shortfalls of ¥937.7 billion in pension reserves of the JR Mutual Aid Association of which ¥765.0
billion (the ``JNRSC Pension Merger Shortfall Liability'') was assumed by JNR Settlement Corporation. The
Company paid its share of the remaining ¥172.7 billion in the amount of ¥77.6 billion in a lump-sum payment in
the year ended 31 March 1998 to be amortised evenly over a five-year period. During 1997 the Government
considered possible ways of disposing of JNR Settlement Corporation's long-term liabilities, including their
portion of the additional pension liabilities related to the shortfall. These discussions resulted in the Law for
Disposal of Debts and Liabilities of the Japanese National Railways Settlement Corporation which came into
effect on 22 October 1998. Pursuant to this law, JNR Settlement Corporation was dissolved and the JNR
Successor Entities were required to assume half of the portion of the JNRSC Pension Merger Shortfall Liability
attributable to JNR employees who had become employees of the JNR Successor Entities (approximately ¥180
billion). In March 1999, the Company paid its portion of such liabilities in the amount of ¥69.9 billion plus
accrued interest, in a lump-sum payment and charged ¥70.5 billion to income for the year ended 31 March 1999.
On 31 August 1998, then-Prime Minister Obuchi stated at a meeting of the House of Representatives' Special
Committee on the Disposition of JNR Settlement Corporation Liabilities and Reform of National Forest
Businesses that ``because an unambiguous decision will be made with respect to those debts and pension
liabilities of JNR Settlement Corporation that have not been designated for assumption by JR companies that
such obligations will be conclusively assumed by the nation or by the Japan Railway Construction Public
Corporation (``JRCC''), one of the predecessors of JRTT, and will not, therefore, be imposed upon JR companies
the Government is of the view that such obligations must not be imposed on JR companies in the future''. The
Company believes it will not be required to assume any additional obligations in respect of the liabilities of JNR
Settlement Corporation that were assumed by the nation or by JRCC and subsequently by JRTT. However, there
can be no guarantee that such obligations will not be imposed upon the Company in the future.
Current and future leases for Shinkansen facilities could impose substantial financial burdens on the
Company
While the Company owns the greater part of its Shinkansen network, a portion is leased from JRTT, and the
Company expects that it will lease additional Shinkansen facilities in the future. Such leases could impose
substantial additional financial burdens on the Company.
Japan's Shinkansen network continues to be expanded pursuant to the Nationwide Shinkansen Railway
Development Law of 1970 (the ``Shinkansen Development Law'') and subsequent Government measures to
implement the Shinkansen Development Law. In October 1997, the Company commenced operation of one new
4

Shinkansen line constructed pursuant to the Shinkansen Development Law, the 117.4 kilometre Nagano
Shinkansen (a portion of the Hokuriku Shinkansen) between Takasaki and Nagano. In December 2002, the
Company commenced operation of the 96.6 kilometre extension of the Tohoku Shinkansen line from Morioka to
Hachinohe. In addition, extensions of the Tohoku and Nagano Shinkansen lines are currently under construction
pursuant to the Shinkansen Development Law and will be operated by the Company upon their completion. In
December 1996, the Government and the ruling political party and its non-cabinet allies at the time reached an
agreement on their policy with respect to the construction and operation of future Shinkansen lines. Under this
policy agreement, operators of future Shinkansen lines, including the Company, would not incur any obligations
other than to pay usage fees over the term of the arrangement, generally 30 years, and would cease to be the
operator of existing parallel non-Shinkansen lines. In addition, usage fees for new Shinkansen lines are to be
determined based upon the expected benefits to be received by the operator as the result of opening such lines and
are expected to be fixed amounts not subject generally to adjustment.
Based on the foregoing principles, the Company entered into a 30-year lease, with then-JRCC which
subsequently merged into JRTT, of the facilities for the Nagano Shinkansen commencing in the second half of
the year ended 31 March 1998 which requires the Company to pay an annual usage fee of ¥17.5 billion, to
reimburse JRCC for fixed asset taxes in respect of the leased facilities, and to pay JRCC an administration fee that
is not material in amount. The Company also entered into a 30-year lease with JRCC of the facilities for the
extended portion between Morioka and Hachinohe of the Tohoku Shinkansen line commencing in the second half
of the year ended 31 March 2003 which requires the Company to pay an annual usage fee of ¥7.9 billion and an
administration fee that is not material in amount. The usage fees were negotiated between the Company and
JRCC taking into account, among other factors, long-term demand forecasts based on demographic trends,
economic outlook and expected developments in alternate modes of transportation. If passenger usage of these
lines is significantly lower than forecasted demand, there can be no assurance that the Company will be able to
operate such lines on a profitable basis over the 30-year period.
The Company does not intend to enter into any additional operating arrangement, including for extensions of the
Tohoku and Nagano Shinkansen lines currently under construction, unless it believes at the time that the amount
of the usage fee it agrees to pay will enable it to earn a profit from the operation of the line over the term of the
arrangement. There can be no assurance, however, that the Company's revenues from operating leased
Shinkansen lines will be sufficient to generate such profits.
Considerations Relating to the Bonds
The ratings of the Bonds could be lowered
The Bonds have received a rating of Aa2 from Moody's and AA- from Standard & Poor's. A downgrade or
potential downgrade in these ratings or the assignment of new ratings that are lower than existing ratings could
reduce the population of potential investors in the Bonds and adversely affect the price and liquidity of the Bonds.
A rating is based upon information furnished by the Company or obtained by the rating agency from its own
sources and is not a recommendation to buy, sell or hold securities, and is subject to revision, suspension or
withdrawal by the rating agency at any time. There is no assurance that a rating will remain for any given period
of time or that a rating will not be lowered or withdrawn entirely by the relevant rating agency if in its judgement
circumstances in the future so warrant.
An active trading market for the Bonds may not develop and the Bonds may have limited liquidity
Application has been made to list the Bonds on the official list of the Luxembourg Stock Exchange and to admit
the Bonds to trading on the Euro MTF. There can be no assurance that a secondary market in the Bonds will
develop or, if it does develop, that it will provide Bondholders with liquidity of investment or that such market or
any liquidity of investment which may exist or develop will continue for the life of the Bonds. In addition, the
market value of the Bonds may fluctuate. Consequently, any sale of Bonds by Bondholders in any secondary
market which may develop may be at discount from the original purchase price of such Bonds.
Exchange rate risks and exchange controls
The Company will pay principal and interest on the Bonds in pounds sterling. This presents certain risks relating
to currency conversions if an investor's financial activities are denominated principally in a currency or currency
unit (the ``Investor's Currency'') other than pounds sterling. These include the risk that exchange rates may
significantly change (including changes due to devaluation of pounds sterling or revaluation of the Investor's
Currency) and the risk that authorities with jurisdiction over the Investor's Currency may impose or modify
exchange controls. An appreciation in the value of the Investor's Currency relative to pounds sterling would
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decrease (1) the Investor's Currency-equivalent yield on the Bonds, (2) the Investor's Currency equivalent value
of the principal payable on the Bonds and (3) the Investor's Currency equivalent market value of the Bonds.
Government and monetary authorities may impose (as some have done in the past) exchange controls that could
adversely affect an applicable exchange rate. As a result, investors may receive less interest or principal than
expected, or no interest or principal.
European Monetary Union
If the United Kingdom joins the European Monetary Union prior to the maturity of the Bonds, there is no
assurance that this would not adversely affect investors in the Bonds. It is possible that prior to the maturity of the
Bonds the United Kingdom may become a participating Member State and that the Euro may become the lawful
currency of the United Kingdom. In that event (i) all amounts payable in respect of any Bonds may become
payable in Euro, and (ii) the law may allow or require such Notes to be re-denominated into Euro and additional
measures to be taken in respect of such Bonds. The introduction of the Euro could also be accompanied by a
volatile interest rate environment, which could adversely affect investors in the Bonds.
Legal investment considerations may restrict certain investments
The investment activities of certain investors are subject to legal investment laws and regulations, or review or
regulation by certain authorities. Each potential investor should consult its legal advisers to determine whether
and to what extent (i) the Bonds are legal investments for it, (ii) the Bonds can be used as collateral for various
types of borrowing and (iii) other restrictions apply to its purchase or pledge of any Bonds. Financial institutions
should consult their legal advisers or the appropriate regulators to determine the appropriate treatment of Bonds
under any applicable risk-based capital or similar rules.
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