Suntory Holdings Ltd. set the widest price range for a Japan initial public offering of above $1 billion in at least five years, as market volatility threatens to undermine demand for shares in its soft-drinks unit.
The Tokyo-based Suntory Beverage & Food Ltd. will be priced between 3,000 yen and 3,800 yen, it said in a filing with Japan’s Finance Ministry yesterday. Selling stock at the lower end, 21 percent below the tentative price set in May, would cut more than $1 billion from the maximum $5 billion sought in Japan’s biggest IPO this year.
“The market itself was not in the situation where stocks take on premiums,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co. The IPO price “was dragged down by the market conditions. I think they seem a little cautious.”
Suntory Beverage is providing the price band after the Nikkei 225 plunged on May 23 and entered a bear market last week. Shares have fallen amid a strengthening yen, disappointment about Prime Minister Shinzo Abe’s delay in implementing a growth strategy and concern the U.S. Federal Reserve will scale back stimulus.
The benchmark Topix index lost 10 percent from May 29, when the Suntory unit gave its tentative IPO price, through June 14.
“The recent volatility in the market makes it difficult for us to see how investors would respond to the IPO price,” Tetsuo Ichimoto at corporate communications at Suntory Beverage & Food, said over the phone yesterday. The Nikkei 225 plunged 7.3 percent on May 23.
Biggest 2013 Offering
The Tokyo listing will raise 375.6 billion yen ($3.96 billion) to 475.8 billion yen based on the sale of 125.2 million shares including over allotment, according to a Bloomberg calculation. The IPO would be Japan’s biggest initial public offering since Japan Airlines Co.’s 663 billion yen offering in September, according to data compiled by Bloomberg.
The offer price will be finalized on June 24 and the unit will begin trading on July 3.
In Dai-ichi Life Insurance Co.’s 2010 IPO, the proposed lower end of the range was 19 percent below the high end, compared with 14 percent for Nexon Co. in 2011 and 7.7 percent for Japan Airlines in 2012.
Osaka-based Suntory Holdings as well as Japanese rivals such as Asahi Group Holdings Ltd. and Kirin Holdings Co. have sought growth overseas as a declining population damps domestic demand.
The closely held Japanese whiskey and beer maker is known for its motto ’Yatteminahare’ or “go for it,” the slogan created by its founder Shinjiro Torii.
It has focused overseas acquisitions on non-alcohol beverages over the past five years and has been exploring ways to fund deals and has set up a department within the listing unit to explore mergers and acquisitions. Suntory Holdings had a 20 percent market share in Japan’s non-alcoholic drink market in 2012, the second biggest after Coca-Cola Co.’s 28 percent, according to researcher Inryosoken.
The IPO proceeds will be used for investments including acquisitions to strengthen operations in developed and emerging markets, according to the company’s prospectus.
About 350 billion yen of the proceeds will be used for Suntory Beverage, and the remaining of about 120 billion yen will be used for Suntory Holdings, which will stay unlisted, Midori Takahashi, a spokeswoman for the parent company said in May, when the company set the tentative price of 3,800 yen.
A lack of interest in the Suntory Beverage IPO could be part of the reason for the wide price range rather than poor market conditions, said Ichiro Takamatsu, a fund manager at Bayview Asset Management.
“The reason why the low end of the range is far from the the tentative price end is I think because not so many people showed interest,” he said. “The price range is expensive in terms of valuation compared to its rivals.”
The company is over optimistic about the impact of Abenomics on domestic consumption and its profit growth rate forecast for this year is “too high,” he said. Since taking office, Prime Minister Abe has unleashed a barrage of deregulation initiatives, extreme monetary easing, a 2 percent inflation target and $102 billion in stimulus under the program that is known as Abenomics.
Net income at Suntory Holdings will increase 45 percent to 53 billion yen for the year ending Dec. 31, the company forecast in February. Revenue is projected to rise 9.1 percent to 2.02 trillion yen.
Suntory Beverage, which accounted for about 60 percent of the parent’s operating profit in 2011, plans to double its sales to 2 trillion yen by 2020, it said in December.
The soft drinks company had 992 billion yen of sales in 2012, an increase of 11 percent from a year earlier, while Suntory Holdings had 1.85 trillion yen.
Nomura Holdings Inc., Morgan Stanley and JPMorgan Chase & Co. were selected to manage Suntory Beverage’s listing, the company said.