Japan Post’s Stock Sale Raises $11B, but Demand Is Subdued

By | September 25, 2017

A government sale of Japan Post Holdings Co. stock raised $11 billion in the world’s second-biggest share sale this year, with the postal and financial giant’s attractive dividend yield helping drum up sufficient, albeit subdued, demand.

The stock priced at a 2 percent discount to its Monday closing price, compared with an indicative range of a 2-4 percent discount.

But underscoring the waning fortunes of the postal giant, which has been criticized for M&A missteps and a lack of clear growth prospects, its coverage ratio slipped when compared with its IPO two years ago. The share sale also priced at a 6 percent discount to its IPO price.

Koji Taki, heads of sales at Imamura Securities Co, noted that for domestic retail investors, the postal firm’s dividend yield of about 3.7 percent compared favorably with the average Japanese bank deposit rate of 0.001 percent.

“Our customers buy stocks to hold as long-term assets. Japan Post is a stock our conservative customers like,” he said.

The value of the deal could later be bumped up to 1.3 trillion yen ($11.6 billion) if an overallotment of shares – to be determined on Wednesday – is fully taken up.

The sale, aimed at helping fund reconstruction efforts after the 2011 earthquake and tsunami, was the first since the 2015 triple initial public offerings for the postal firm and its two units both of which are major financial firms – Japan Post Bank Co Ltd and Japan Post Insurance Co Ltd.

The government offered 929 million shares at 1,322 yen, according to a filing by Japan Post, with the offering gaining a coverage ratio of 1.6 times.

That compares with a coverage ratio of 5 times for its IPO, according to information from market sources at the time.

Similar to the IPO, the bulk of the offering – 76 percent – was allocated to domestic retail investors, with another 20 percent going to overseas investors and the rest to domestic institutional investors.

A certain level of demand from institutional investors had been expected, as passively managed funds need to buy Japan Post shares for portfolios that track market benchmark indexes, said investment banking sources involved in the offering.

Japan Post has seen a gradual decline in earnings in recent years as the two financial units, which together have nearly 290 trillion yen ($2.6 trillion) in assets and make up about 90 percent of its profits, have been hit by diminishing returns amid an ultra-low interest rate environment.

To make up for that, it turned to M&A with little success. It bought Australian logistics firm Toll Holdings Ltd for A$6.5 billion ($4.9 billion) but had to write down much of the acquisition. Talks to buy Nomura Real Estate Holdings Inc ended earlier this year after failing to agree terms.

Goldman Sachs, Nomura Securities and Daiwa Securities were global coordinators for the offering, which is second only to Italian bank UniCredit’s $13.7 billion share issue in February for share sales this year.

Separately, Japan Post also bought back 100 billion yen worth of its own shares from the government this month.

The Japanese government originally flagged some 4 trillion yen in sales of shares in Japan Post firms by the 2022 fiscal year when it first began privatizing the firm. That implies a further 1.2 trillion yen of further share sales sometime in the next five years.

($1 = 112.0300 yen) (Reporting by Taiga Uranaka; editing by Edwina Gibbs)


Was this article valuable?

Here are more articles you may enjoy.