Japan Airlines Initial Share Sale Priced at Top of Range

Japan Airlines Co.’s parent priced a 663 billion yen ($8.5 billion) initial public offering in the carrier at the top of a range after record earnings lured investors to the biggest IPO since Facebook Inc. (FB)

The stock price was set at 3,790 yen, according to a regulatory filing today. Shares in the Tokyo-based carrier will begin trading on the city’s stock exchange Sept. 19.

JAL will be the world’s fourth-biggest carrier by market capitalization when it returns to the stock market having completed a trip through bankruptcy protection and a turnaround that included shedding a third of workers, canceling routes and retiring older planes. The airline is being priced at about five times forecast earnings, compared with about 13 times for All Nippon Airways Co. (9202), Japan’s largest carrier.

“It’s a reformed company,” said Mitsushige Akino, who oversees the equivalent of $600 million in assets in Tokyo at Ichiyoshi Investment Management Co. “Even while the overall market is doing badly, there’s a chance for investors to make some short-term profits.”

The Topix index has dropped about 16 percent from this year’s peak on March 27 because of concern Europe’s debt crisis is deepening and that growth is slowing in China and the U.S. Japan’s economy expanded an annualized 0.7 percent in the quarter ended June, half the pace the government initially estimated, the Cabinet Office said in Tokyo today.

ETIC Stake

The JAL offering was marketed at 3,500 yen to 3,790 yen. The carrier’s state-backed parent, Enterprise Turnaround Corp. of Japan, is selling 175 million shares or a 97 percent stake. The airline won’t receive any money from the IPO.

“Total demand for the shares well exceeds those on sale,” the carrier said in a statement.

The airline will list on the first section of the Tokyo Stock Exchange under the ticker 9201, it said. The company traded under that number until a 2002 merger with Japan Airlines System Corp., when it was given the ticker 9205. It retained that number until its bankruptcy and delisting in 2010.

JAL will surpass ANA as Japan’s biggest carrier by market value following the sale and will only trail Latam Airlines Group SA, Singapore Airlines Ltd. and Air China Ltd. (601111) worldwide, according to data compiled by Bloomberg.

High Demand

“Pricing at the top end indicates high demand from individual investors,” Yoshinori Ogawa, a stock-market analyst at Faith Inc. said by telephone. “‘It’s also Japan’s most- watched IPO of the year, so brokers probably wanted to settle at the upper end to avoid any concern it isn’t popular.”

ANA rose 2.3 percent to 180 yen at close of trading in Tokyo. The carrier, which completed a share sale last month, has fallen 16 percent this year.

JAL is returning to the stock market after a two-year turnaround in bankruptcy protection that transformed it into the world’s most profitable airline. The government drafted in Kazuo Inamori, the founder of electronics company Kyocera Corp. (6971), to oversee the restructuring.

The plan was supported by a 350 billion-yen investment from state-backed ETIC. The fund, which can only invest in companies for three years, will get back more than it invested, Inamori, who is now JAL’s chairman emeritus, has said.

“With the pricing finally being set, we can draw a line on JAL’s restructuring,” Osamu Yoshida, a vice transport minister, told reporters today in Tokyo. “The return of funds after steadfast government financing shows that they did a good job.”

GM IPO

JAL isn’t the first transportation company to return to being publicly traded following a government rescue. In the U.S., General Motors Co. (GM), emerged from a government-backed bankruptcy in 2009 and had an IPO in November 2010. The shares slid 29 percent through Sept. 7 to $23.37 from the IPO price of $33. The U.S. government still holds a 32 percent stake in GM.

GM became the top-selling global automaker in 2011, retaking the title from Toyota Motor Corp. (7203), whose output was limited following natural disasters in Asia. Toyota is on pace to be No. 1 this year. The company’s sales rose 34 percent in the first six months to 4.97 million globally, leading GM by 300,000 deliveries.

Japan IPOs

Prior to today, companies have raised more than 130 billion yen in 23 priced IPOs in Japan this year. That’s little changed from a year earlier, according to data compiled by Bloomberg. Activia Properties Inc. (3279) raised 94.3 billion yen in a sale in May. Facebook raised $16 billion in its New York IPO in May. The shares have since fallen about 50 percent.

JAL posted a record profit of 187 billion yen in the year ended March, more than twice that of Beijing-based Air China, the most profitable listed carrier, according to data compiled by Bloomberg. The airline is predicting a profit of 130 billion yen this fiscal year, compared with 40 billion yen at ANA.

JAL has benefited from tax credits against past writedowns, which have prompted complaints from opposition lawmakers.

ANA and JAL are also both facing new competition in Japan from three discount carriers that have started flights this year. JAL owns a stake in one, Jetstar Japan Co., while the other two are part-owned by Tokyo-based ANA.

The three newcomers all filled about 90 percent of domestic seats during last month’s peak holiday season. JAL and ANA both had load factors of less than 80 percent for flights within the country, and both reported declines from a year earlier.

To contact the reporters on this story: Chris Cooper in Tokyo at ccooper1@bloomberg.net; Kiyotaka Matsuda in Tokyo at kmatsuda@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

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