Japanese IPOs draw global interest
Institutional investors are shifting their focus to Japan's sizable IPOs from a spate of secondary trades that unwinded cross-shareholdings earlier this year.
Both global and domestic investors are watching the IPOs of Tokyo Metro and Kioxia closely, with the Japanese railway operator on Friday announcing its plan for an IPO of around ¥319.6bn (US$2.3bn), which would be the largest Tokyo IPO for almost six years since SoftBank Corp raised ¥2.41trn in December 2018.
Tokyo Metro is planning to wrap up the IPO in October. It will sell 290.5m secondary shares, split 80%–20% between domestic and international investors, at an indicative price of ¥1,100 each.
The bookbuilding price range will be announced on October 7. Bookbuilding will run from October 7–11 and the pricing will be on October 15. The shares are expected to list on October 23.
ECM bankers believe the two IPOs could help draw investors’ attention back to the Japanese IPO market, even though the former is expected to be largely sold to retail investors.
Investors consider Tokyo Metro to be a good quality asset with a strong business based on high ridership and expect the mass transit operator will see steady growth, benefiting from the declining numbers of remote workers as staff return to their offices.
The company is aiming to deliver a dividend payout ratio of 40% or higher in the current fiscal year that ends next March to attract more investors, a person familiar with the matter said.
The Japanese national and Tokyo metropolitan governments currently hold 53.4% and 46.6% of the subway operator respectively.
Nomura, Mizuho and Goldman Sachs are the joint global coordinators.
Close behind
Kioxia, the world's third-largest manufacturer of NAND flash memory chips, is also planning to bring its IPO to the market next month.
Carlyle-backed X-ray analysis, measurement and testing equipment maker Rigaku Holdings has also joined the busy pipeline, looking to list on October 25 following an IPO of up to ¥109.6bn IPO. Bank of America, JP Morgan, Morgan Stanley and Nomura are the joint global coordinators.
Even though the deals may come more or less at the same time, Japanese ECM bankers are optimistic as there is a deep layer of retail demand supporting transactions.
"Japanese IPOs are mainly allocated to individual investors. Even for IPOs that are targeting institutional investors, the companies can also increase the allocation ratio to retail investors," said one of the bankers.
However, market participants reckon it is better for the duo not to overlap as Japanese IPO performance has been mixed and investor sentiment is still fragile, as evidenced by the early August sell-offs.
"Looking at the pricing of IPOs that will be listed in the second half of September, I feel that the situation lacks a sense of direction, with some deals running smoothly while others have lowered their prices," said an IPO consultant.
Asian investors focusing on Japanese stocks believe Kioxia and Tokyo Metro will appeal to different investor bases.
Second time lucky?
Kioxia, the former memory chip unit of Toshiba, is making its second listing attempt after abandoning its earlier plan in September 2020 because of poor market conditions and uncertainty linked to the coronavirus pandemic.
Investors are generally cautious about the deal.
"For Kioxia, it feels like it has again missed the right time to get out. A similar company, Micron, has almost halved its share price from its June high, which is quite unimpressive. Even if the individual numbers are good, AI is becoming more selective as a theme, and the story of the semiconductors that support it is becoming more challenging," said an Asian investor.
Investors are going to be cautious towards the semiconductor sector as growth looks challenging in the coming quarters and Kioxia's peers have been re-rated, a foreign investor said.
According to market research firm TrendForce, Kioxia has a 17% market share for NAND flash memory, followed by SK Group (SK Hynix and Solidigm) at 26%, and Samsung leading with 32%, as of Q2 this year.
ECM bankers away from the transaction said they expect investors to push for Kioxia to make concessions on valuation, especially since this is its second attempt at listing.
Bain Capital owns 56.2% of the company, Toshiba 40.6% and Hoya 3.1%, according to the company's website.