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Sunday, 19 November 2017

Asia-Pacific Equity Issue: Suntory Beverage and Food’s ¥388bn IPO

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Markets defied

Suntory Beverage and Food had looked like a safe bet for IPO success, given huge investor interest in Abenomics-driven Japanese equities, but the deal hit the road at the worst possible time for markets this year.

Pre-marketing began on May 29, a week after the US Fed seemed to indicate that it would soon start reducing its purchases of Treasuries, sending yields rocketing.

It would have been understandable if Suntory had decided to delay or reduce its ¥388bn (US$3.97bn) IPO, but it went ahead with a wider than usual guidance range, giving it the flexibility to cope with the new market conditions.

It is not as if the Suntory story was lacking ambition – management pitched to investors that it warranted comparison to companies like Coca-Cola and Nestle rather than Japanese-listed peers more focused on the domestic market. It is the fourth-largest company globally in its segment but lacked the recognition of those brands. Management split three ways to tell the story in 150 one-to-one meetings and 15 group sessions.

In the end, more than 200 institutional accounts participated in the international tranche, with the orders from sovereign wealth funds particularly notable as they had missed the run up in stock prices earlier in the year.

There was particularly strong participation from consumer-specialist investors, since this was the largest IPO in the sector since Kraft Foods in 2001.

The deal priced at ¥3,100 per share, giving a healthy 16 times P/E multiple, above the bottom of the ¥3,000–¥3,800 guidance. This was despite an 8.8% drop in the Nikkei between IPO registration and pricing. The greenshoe was later exercised in full, making it the year’s second-largest IPO globally at the time and the biggest in Asia-Pacific.

The company gave clear guidance during marketing that it planned to use part of the funds for potential acquisitions, and it delivered on this promptly, snapping up GlaxoSmithKline’s iconic Lucozade and Ribena brands for £1.35bn (US$2.1bn) in September. Foreign investors had been sceptical of corporate Japan’s overseas M&A ambitions before, but Suntory’s good track record gave them confidence.

Nomura, Morgan Stanley and JP Morgan were joint global co-ordinators for the IPO. Citigroup and Goldman Sachs joined as active joint bookrunners on the international tranche and SMBC Nikko and Mizuho were passive joint bookrunners.

For defying market conditions, selling a clear story to foreign investors and delivering on its acquisition plans, Suntory Beverage and Food’s IPO is a worthy winner of IFR’s Asia-Pacific Equity Issue of the Year.

To see the full digital edition of the IFR Review of the Year, please click here.

To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com

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