JP wraps up second delivery
Equities Follow-on and buyback net ¥1.4trn for governmentBY ROBERT HARTLEYJAPAN POST HOLDINGS chalked
up a win for Shinzo Abe’s
government last week as
it wrapped up its ¥1.3trn
(US$11.5bn) follow-on share
offering to a solid response
from investors.
The second round of the
company’s privatisation priced
at the top of the indicative
range last Monday, becoming
the biggest of its kind since
Nippon Telegraph and
Telephone (NTT) in 1999.
The offering went largely
to domestic retail buyers,
vindicating the government’s
efforts to encourage individualsavers to invest more of their
cash in the equity markets.
“They (the government) have
a policy to try to make the
Japanese people transfer their
savings to investments and
this follow-on provided that
opportunity,” said one banker
working on the deal.
The company set a price of
¥1,322 per share, representing
a 2% discount to the September
25 close of ¥1,349. The offer of
990m shares, which included
a greenshoe option of 76m
shares, had an indicative
discount range of 2%–4%.
International investors took
20% of the shares, Japanese
retail investors took 76% andJapanese institutions got 4%.
The international book was
2.5 times covered with around
150 lines, while the domestic
retail portion was around 1.
times covered. One third of
the international book went to
long-only and index funds.
The follow-on comes less
than two years after Japan
raised US$12bn from a three-
pronged listing of Japan Post
Holdings and subsidiaries
Japan Post Bank and Japan
Post Insurance in November- The second stage of
the privatisation, which only
involved a sale of shares in the
parent, struggled to match the
high demand for shares in the
first round, but some on the
deal felt it was to be expected.
“The first one was an IPO. So,
it’s hard to compare in terms
of popularity,” said the banker.
“For the follow-on, investors
could buy in the market or the
offering.”
The follow-on offering was
preceded by a buyback of
roughly ¥100bn in which Japan
Post Holdings repurchased
a chunk of shares from the
government. The buyback and
the follow-on combined mean
the government has raised
around ¥1.4trn from its Japan
Post stake this time.
While the off-market
buyback was ostensibly
conducted to improve
shareholder returns and allow
the government to increase
the value of its sell-down,
expectations that the treasuryIndian insurers too rich for retail
Equities Individual investors shun SBI Life, ICICI Lombard IPOsBY S ANURADHAIndian insurers may have to
settle for lower valuations if
they want to attract individual
investors who gave the ICICI
LOMBARD and SBI LIFE INSURANCE
floats a miss.
Riding on the positive
outlook for the Indian financial
sector, SBI Life and ICICI
Lombard sold their respective
Rs84bn (US$1.3bn) and Rs57bn
IPOs at pricey valuations. While
the issues sailed through, the
participation of high-net-worth
investors and retail investors
was disappointing.
SBI Life’s IPO was 3.
times covered, with the
institutional tranche 12.
times oversubscribed, but the
HNI tranche was only 70%
subscribed and retail only 85%.
The float, which was priced
at the top of the Rs685–Rs
range, valued the business at
four times embedded value, a
premium to ICICI Prudential,
which listed last year.
ICICI Lombard fared
marginally better. The HNItranche was 83% subscribed,
while the retail piece was
slightly oversubscribed at 1.
times.
Bankers blamed the cool
retail showing on expectations
of limited short-term gains for
the shares.
“The HNI response was weak
as the first-day pop is always
difficult on large issues, but,
to be honest, I am surprised
by the response of the retail
investors,” said a banker on the
SBI Life IPO, India’s largest in
seven years.WEAKER MARKETS
The weak support from HNI
and retail investors, together
with a softer stock market,
weighed on ICICI Lombard’s
debut.
The stock opened 1.5% lower
last Wednesday and, at one
point, was down as much as
3.4%, but rebounded to finish
the day at Rs681.20, 3.1% above
the IPO price of Rs661.
Concerns over a likely
economic slowdown and
the lack of strong corporateearnings recovery have taken
the sheen off the benchmark
S&P BSE Sensex Index. As of
last Wednesday, the index was
down 3.8% over the last five
days.
“Bankers are pricing the
issues on the feedback they getfrom anchor investors, who
seem to be flush with cash. It is
as though leaving anything on
the table is not a good strategy
anymore,” a broker said.
Typically, in an Indian IPO,
almost half of the shares
are offered to HNI and retail
investors, making their
participation crucial for asuccessful float, especially at a
time when investors are spoiled
for choice.
HNI and retail investors
together took 44% of SBI Life’s
IPO and 48% of ICICI Lombard’s.
SBI Life will start trading on
October 3.ADJUSTING EXPECTATIONS
With the two insurers failing
to arouse non-institutional
interest, market participants
are anxious to see if
forthcoming insurance issuers
will adjust their valuation
expectations.
HDFC STANDARD LIFE , GENERAL
INSURANCE CORPORATION OF INDIA ,
NEW INDIA ASSURANCE and RELIANCE
GENERAL INSURANCE plan IPOs to
raise a total US$3.7bn–$4.7bn
before March 31. HDFC
Standard Life will be the first
of these and plans to launch
a US$1bn–$1.5bn IPO next
month. State-owned GIC is
currently meeting investors.
Bankers have said parent
Housing Development Finance
Corp will still aim to sell HDFC
Standard Life at a high price,News
“There is no way
HDFC will settle for a
valuation lower than
State Bank of India or
ICICI Bank. It is already
behind in the IPO
race and can’t fall on
valuations, too.”