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Japan Airlines Initial Share Sale Priced at Top of Range

Japan Airlines Rises on Trading Debut After $8.4 Billion IPO
Yoshiharu Ueki, president of Japan Airlines Co. (JAL), prepares to strike a bell during a ceremony for the company's initial public offering at the Tokyo Stock Exchange in Tokyo. Photographer: Tomohiro Ohsumi/Bloomberg

Japan Airlines Co. rose 1.1 percent on its Tokyo trading debut following a 663 billion-yen ($8.4 billion) initial public offering, the worst first-day performance for a Japanese stock in three months.

The carrier closed at 3,830 yen compared with an IPO price of 3,790 yen. The benchmark Nikkei 225 Stock Average rose 1.2 percent.

JAL failed to beat the benchmark after shares in the IPO, the biggest since Facebook Inc., were priced at the top of the range marketed to investors. The airline, which relisted following a trip through bankruptcy protection and a government-backed restructuring, is also facing rising competition on domestic routes from low-cost carriers.

“The shares were priced just right,” said Mitsushige Akino, who oversees the equivalent of about $600 million in assets in Tokyo at Ichiyoshi Investment Management Co. “In the long term, the outlook is tough. They don’t have many growth prospects and are facing more competition.”

The airline was priced at five times forecast earnings in the IPO, less than half the level that larger rival All Nippon Airways Co. trades at. ANA fell 0.6 percent to 180 yen in Tokyo. It has fallen 16 percent this year, as it issued new shares, compared with a 9.2 percent gain for the Nikkei 225.

JAL was the most traded stock by value on the Tokyo Stock Exchange today. A total of 155.6 billion yen worth of shares changed hands, compared with 30.2 billion yen in the second-most traded company, Sumitomo Mitsui Financial Group Inc.


The carrier ended the day with a market value of $8.8 billion, trailing only Air China Ltd., Singapore Airlines Ltd. and Santiago, Chile-based Latam Airlines Group SA worldwide.

“We should see the price rise gradually in the short-term,” said Minoru Matsuno, president of Value Search Asset Management Co., a Tokyo-based investment advisory firm “Overall, the fact that it rose at the start of trading is a plus.”

JAL’s return to the stock market followed a two-year turnaround that transformed it into the world’s most profitable airline. The carrier shed more than a third of workers and retired older planes and scrapped unprofitable routes.

It plans to expand its international capacity 25 percent over five years as it introduces 45 new Boeing Co. 787 aircraft. The planes may be used to open new routes in Southeast Asia, President Yoshiharu Ueki said in an interview ahead of today’s re-listing.

“We’ve totally restructured and we’ve changed our mentality” Ueki said. “That will allow us to keep on making profits.”

The airline is predicting a profit of 130 billion yen this fiscal year, compared with 40 billion yen at ANA. It has benefited from tax credits against past writedowns, which have prompted complaints from opposition lawmakers.

JAL Turnaround

CLSA Ltd. analysts Paul Wan and Yuki Haraguchi predicted that JAL’s shares may climb to 5,420 yen, 43 percent above its IPO price. They began covering the stock with a buy recommendation.

“JAL’s rapid turnaround since it entered bankruptcy in 2010 is one of the biggest success stories we have seen in the aviation industry for some time,” said Paul Sheridan, head of consulting in Hong Kong at Ascend Worldwide Ltd. Still, the carrier “needs to maintain its focus on its passengers to retain their loyalty, having worked so hard to win it back.”

JAL’s state-backed parent, Enterprise Turnaround Initiative Corp. of Japan, sold 175 million shares in the IPO, its entire 97 percent stake. The turnaround fund, which can only invest in companies for three years, had invested 350 billion yen in the carrier.

Government Funds

The government, which guaranteed ETIC’s investment, will get a little less than 200 billion yen from the sale excluding taxes, Finance Minister Jun Azumi told reporters in Tokyo today.

“We haven’t decided yet how to use those funds,” Azumi said. “This will be an important financial resource and it may be an option to use money for reconstruction.”

Japan is rebuilding in areas northeast of Tokyo that were damaged by last year’s earthquake and tsunami. JAL isn’t receiving any money from the sale.

The JAL IPO was the second-biggest in Japan in more than a decade. Dai-Ichi Life Insurance Co. raised 1 trillion yen in a 2010 sale. The sale also accounted for about half the $17.6 billion raised in airline IPOs worldwide in the past decade, according to data compiled by Bloomberg.

The offering boosted the amount raised in 25 priced IPOs in Japan this year to 798 billion yen. Companies raised about 150 billion yen in 36 IPOs in the whole of last year.

The first-day move was the worst in Japan since Activia Properties Inc. fell 3.6 percent on its debut in June following a 94.3 billion yen IPO. There have been seven other IPO debuts since then, according to data compiled by Bloomberg.

New Competition

Facebook, the largest IPO globally this year, gained 0.6 percent on its May trading debut after a $16 billion IPO. The shares have since fallen 42 percent below the sale price.

General Motors Co., which went through a government-backed turnaround similar to the Japanese carrier, rose 3.6 percent on it first day of trading in New York in 2010. The shares of the automaker, still 32 percent government-owned, are 26 percent below the IPO price. The sale raised $23.1 billion, including overallotment options and preferred stock.

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