Triple bullseye for Japan Post IPOs

The triple listing of Japan Post Holdings and its banking and insurance units offer a good alternative investment for retail investors in a low interest rate environment.

The initial public offerings of Japan Post Holdings, Japan Post Bank, and Japan Post Insurance have each priced at the top of their respective indicative ranges on expectations that yield-starved retail investors will subscribe heavily to the deals in a scramble for defensive assets.

In a coup that promises to raise the government almost $12 billion and boost trading on the Tokyo stock market, Japan's Ministry of Finance said on Monday that it will sell an 11% stake in Japan Post Holdings at ¥1,400 per share.

The final price represents a 3.7% premium to the indicative price of ¥1,350 per share announced last month, showing the government is now more optimistic about retail take-up after collecting orders from institutional investors globally. The postal unit will take orders from retail investors from October 27 until October 30 before listing on the Tokyo stock exchange on November 4. 

Japan Post Holdings’s top-end pricing echoes those of its banking and insurance subsidiaries, which fixed their IPO offer prices last week and completed their retail offerings on Monday.

The finance ministry priced Japan Post Bank's shares at the highest end of its ¥1,250-¥1,450 per share indicative range, while the share price for Japan Post Insurance was finalised at ¥2,200 compared with an indicative range of ¥1,900 to ¥2,200.

Based on these final prices, the Japan Post Bank IPO will raise about $4.95 billion while Japan Post Insurance's share sale will raise $1.2 billion. That's on top of the ¥693 billion ($5.7 billion) that the Japan Post Holdings IPO is now expected to muster.

The triple IPO helping will also create a massive float for secondary market trading. Japan Post Holdings and its subsidiaries will have a combined market value of $108 billion, which would make them second only in size in Japan to Toyota Motor Corp. Japan Post Holdings alone will rank tenth in terms of its expected market capitalisation, surpassing the likes of Mizuho Financial Group and Nissan Motor Company.

Why Japan Post?

One Asia-focused hedge fund manager in Hong Kong told FinanceAsia that all three of the IPOs are several times oversubscribed and that his fund had received only tiny allocations.

Japan's army of Mrs Watanabes – as the country's retail investors are often known – are expected to flock to the deal in their quest for an investment that can counter the effects of a depreciating yen, given Prime Minister Shinzo Abe's aggresive stimulus programme and the paucity of investment alternatives.

For years Bank of Japan has kept the nation’s nominal interest rate at zero, which implies that investors are unable to earn any interest from their bank deposits. Japanese government bond yields have also come under pressure since the central bank began its massive, Abe-inspired bond-buying programme three years ago. From more than 0.8% in late 2012, the annualised return on benchmark 10-year sovereign bonds was just 0.313% on Monday. 

In comparison Japan Post Holdings, Japan Post Bank, and Japan Post Insurance will offer an estimated dividend yield of 3.3%, 3.4%, and 2.5%, respectively, on a rolling 12-month basis, according to a source familiar with the situation. That implies a pickup of 150 basis points over the average dividend yield of 1.56% for Nikkei 225 constituents.

Based on the final pricing, Japan Post Holdings is valued at 0.72 times its unconsolidated book value, the source said. In the case of Japan Post Bank the ratio is 0.47 times while for Japan Post Insurance it is 0.67 times, he added.

Postal privatisations

Postal privatisations are often seen as a significant milestone in a country’s economic reform programme because of their strategic value. In the case of Japan, it is particularly important because the postal service is also the largest savings bank with total deposits of ¥177.7 trillion as of the end of March.

For a government it is also a good way to improve operational efficiency since many postal service systems yield poor returns relative to the large assets they sit on. For instance, the United States Postal Service has recorded a loss for nine consecutive years, while Japan Post Holdings’s return on assets was a mere 0.2% in the last full financial year, compared with an average of 9.2% for companies listed on the first section of the Tokyo stock exchange.

As a result, postal IPOs are often well received and trade up immediately after their listings. In the first-ever postal privatisation by a major economy, Germany’s Deutsche Post ended 2.4% up in the first day of trading in November 2000 before advancing a further 8% within a month. In 2013, Britain’s Royal Mail shot up by 34% on the first trading day in the country’s largest IPO that year.

Following these successes a number of other countries are also considering taking their postal unit public, starting with Poste Italiane, which raised €3.4 billion ($3.8 billion) for the Italian government ahead of its trading debut on Tuesday.

China, while yet to announce plans to float the entire postal system, is planning to list Postal Savings Bank of China in a $20 billion dual listing in Hong Kong and Shanghai next year. The lender is the banking unit of state-owned China Post Group Corporation.

Last week China's State Council said in a statement it will further open up the postal service and logistics industries by introducing "market forces".

However, a source familiar with the plan said the listing was stalled partly because of China’s suspension of IPO approvals on domestic stock markets.

¬ Haymarket Media Limited. All rights reserved.
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