Marking a swift rebound from its bankruptcy, Japan Airlines (JAL) is now set to raise ¥663 billion ($8.5 billion) from its initial public offering in Tokyo, with listing scheduled for September 19.
JAL has priced the IPO at ¥3,790 a share, after marketing the deal in a range between ¥3,500 and ¥3,790, the airline said in a statement yesterday. It was delisted from the Tokyo Stock Exchange in early 2010, when it filed for bankruptcy with debts of ¥2.3 trillion. As part of the turnaround measures, the airline has eliminated unprofitable routes and cut staff and pensions, and it posted a record operating profit of ¥205 billion for the latest fiscal year, which ended in March.
Bookbuilding for the IPO revealed strong demand, exceeding the number of shares on offer, with interest coming from a range of sources, according to JAL. It also said that a substantial amount of demand was reported at the upper limit of the tentative price range.
At $8.5 billion, it will be the second-biggest offering in the world this year after Facebook’s $16 billion IPO in May, according to data by Dealogic. It will also be Japan’s fourth-biggest IPO on record, after NTT Mobile Communications Network’s $18.4 billion offering in 1998, Nippon Telegraph & Telephone’s $13.6 billion offering in 1986, and Dai-ichi Life Insurance’s $11.1 billion IPO in 2010, it said.
The latest deal pushes Japan’s IPO volume to $10.4 billion year-to-date, significantly more than the $417 million raised during the same period last year, according to Dealogic.
“The fact that it priced at the top end of the range after the bookbuilding reflects popularity in the stock,” a market participant in Tokyo said yesterday. “But it seems like it’s more popular among individual investors who like the airline’s brand name.
“Institutional investors that I’ve talked to have expressed concerns about factors such as the company’s growth prospects. Also, even though the company’s business is stable now, it can be affected by external factors such as currency moves and oil prices.”
Through the offering, the Enterprise Turnaround Initiative Corporation of Japan (ETIC) is selling all of the shares that it owns in JAL, ending its assistance to the airline and recovering its investment. The state-backed fund made a capital injection of ¥350 billion and bought 175 million shares in the company after the bankruptcy. ETIC said in early August that it owns 96.5% of the stock in terms of voting rights and plans to sell all of the shares.
ETIC is a joint-stock corporation established and authorised by the Japanese government to provide support for the revitalisation of operations at small and medium-sized enterprises, as well as other businesses, including large corporations that have potential to be revitalised but are carrying excessive debt.
The proceeds are basically all going to the government, with JAL not receiving any money from the IPO, according to a JAL spokesman.
Of the 175 million shares, 131.25 million shares, or 75% of the deal, are intended for the Japanese offering and 43.75 million shares, or the remaining 25% of the deal, are for the international offering, which is mainly targeting Europe and the US, according to the airline.
Daiwa Securities is the global coordinator for the deal. The subscription period will start from today (September 11) and continue until September 14. JAL will be listed on the first section of the Tokyo bourse.
“Listing of the stock merely means we’re now standing at the start line for our new start,” JAL president Yoshiharu Ueki said in a statement on August 3 about its re-listing plan.
As the outlook for the global economy remains uncertain and competition is intensifying, the airline industry.
To combat higher fuel prices, JAL plans to update its fleet with more fuel-efficient aircraft by increasing its number of Boeing 787s to 45, from the current four aircraft. As well as using less fuel, the 787 should also help reduce operating costs.
Addressing the increased competition from low-cost carriers, JAL also launched a new domestic airline offering lower airfares in August last year. Jetstar Japan, formed in partnership with Qantas and Mitsubishi Corp, eventually plans to offer short-haul international services to key Asian cities.
But Jetstar Japan will not be part of JAL’s consolidated earnings, and while it will take part in important management decision-making for the low-cost carrier, it has said it will not be involved in its day-to-day operation.
For the first quarter of the current fiscal year, JAL’s net income more than doubled to ¥26.9 billion from the same period last year. Still, for the full year, it forecasts it will book ¥130 billion in net income, down from ¥186.6 billion a year earlier, and log ¥150 billion in operating profit.
The Nikkei average, which ended yesterday’s trade almost unchanged, is up 4.9% year-to-date. But it has shed about 13.5% from this year’s peak in late March, as global stocks tumbled amid worries about the eurozone debt crisis. JAL’s rival All Nippon Airways rose 2.3% yesterday, but is down 15% since the start of the year.