Tokyo equity offerings surge as Japan Inc begins to shift towards capital efficiency

Rakuten Bank

29/09/2023 24:00

By Anton Bridge and Scott Murdoch
       TOKYO, Sept 29 (Reuters) - Japan equity offerings have
more than quadrupled in value this year, with investors
encouraged by a surge in the Nikkei stock index to a 33-year
high and signs that Japanese firms have begun to manage their
capital more efficiently.
    A tough 2022 for equity capital markets globally resulted in
a backlog of fundraising deals. Japan has also benefitted from
far lower interest rates than other countries, billionaire
Warren Buffett's lifting of stakes in Japanese firms and a
re-allocation of funds away from China amid tensions between
Beijing and Washington.
    Proceeds from initial public offerings and secondary share
and convertible bond issues soared 343% to $23.7 billion in the
first nine months of the year, LSEG data showed. The number of
deals climbed by a third.
    In contrast, equivalent data for China shows a 29% decline
in proceeds, albeit to a much bigger $104.3 billion, on an 11%
drop in the number of deals.
    There were 73 Japan IPOs during the nine months that raised
a combined $3.3 billion, nearly four times as much as the same
period a year earlier. They included a $625 million offering
from Rakuten Bank  5838.T .
    Chip tool maker Kokusai Electric's planned 111 billion yen
($740 million) offering - currently in train for an Oct. 25
listing - is set to be Japan's largest IPO in more than five
years.
    Successful listings both in Japan and elsewhere could
encourage more IPOs, said Yusuke Minowa, head of equity capital
markets at Goldman Sachs Japan.
    "Companies are looking at some of the recent major IPOs and
if they perform well that is going to give confidence to some
companies to move ahead with their plans."
    Other notable offerings included Toyota's sale of about 250
billion yen worth of shares in KDDI, or about 20% of its holding
in the telecoms company - an example, bankers said, of an
acceleration in the unwinding of Japan Inc cross-shareholdings.
    Bankers say investors have been particularly enthused by the
Tokyo Stock Exchange's call in March for companies to disclose
plans to improve capital efficiency, especially if their shares
are trading below book value. 
    That has triggered a wave of share buybacks and dividend
hikes and helped the Nikkei  .N225  climb by roughly a quarter
for the year to date compared with an 11% increase for the S&P
500  .SPX . 
    "The Nikkei has plateaued at this higher level – and may yet
go higher – rather than falling back straight away, so I expect
the positive feeling to continue," said Tsunenori Hanakura,
general manager of equity capital markets at Mitsubishi UFJ
Morgan Stanley Securities.
    Institutional investors, from hedge funds to long-only
funds, have been rebuilding their Japan positions since April,
according to Goldman Sachs' Minowa.
    "Those international investors had been underweight and they
are still underweight but they are starting to pick up their
exposure," he said.
    Hayato Takei, head of equity syndication at Mizuho
Securities, said major U.S. funds are still around 20%
underweight Japan compared to benchmarks which means momentum
for Tokyo's equity capital markets is likely to remain robust.
    "Now everyone is focused on whether the Nikkei will rise
further," said Takei.
    ($1 = 149.5300 yen)

 (Reporting by Anton Bridge in Tokyo and Scott Murdoch in
Sydney; Editing by Edwina Gibbs)
 ((anton.bridge@tr.com, +81 90 9685 3445))