Japan Post Shares Surge 26% in the Biggest IPO of 2015

Japan Post Shares Surge in $12 Billion IPO Debut
  • Insurance unit soars 56% after Japanese flocked to triple IPO
  • Sale is culmination of 10-year drive to privatize post service

Japan Post Holdings Co. and its two financial units jumped on debut in Tokyo trading after investors flocked to the group’s $12 billion initial public offering.

QuickTake Japan Post

Shares of the holding company surged 26 percent to 1,760 yen at the close of trading Wednesday in Tokyo. Japan Post Bank Co. climbed 15 percent to 1,671 yen while the insurer soared 56 percent to 3,430 yen. The benchmark Topix index rose 0.9 percent.

The debuts mark the culmination of a decade-long political effort to privatize the postal service, following similar efforts in Italy, the U.K. and Belgium. The three-pronged IPO, which was oversubscribed within days of going on sale last month, was mostly sold to Japanese individuals as part of Prime Minister Shinzo Abe’s efforts to urge people to invest more of their savings.

“There’s a carnival atmosphere in the market,” said Mitsushige Akino, executive officer at Ichiyoshi Asset Management Co. in Tokyo. “Individual investors who couldn’t purchase the shares during the bookbuilding process are trying to get hold of them now. The prices were relatively cheap and the dividend yields are high.”

Year’s Biggest

Japan’s government raised 1.44 trillion yen ($12 billion) from the IPO, the largest since Alibaba Group Holding Ltd. in September 2014 and Japan’s biggest state asset sale since 1987. The privatization is part of a wave that includes Britain’s Royal Mail Plc in 2013, Italy’s Poste Italiane SpA last month and potentially China’s postal savings bank next year.

Japan Post Holdings became the third-biggest gainer among the 10 biggest debut offerings in the nation’s history, trailing only East Japan Railway Co., which rose 58 percent on its first day of trading in 1993, and Nippon Telegraph & Telephone Corp., which climbed 34 percent in 1987, data compiled by Bloomberg show. Before Japan Post, the country’s 10 largest IPOs gained 12 percent on average in their first day of trading, the data show. Eight of those were companies that had some form of state backing.

Keep Rising?

“The prices ended up higher than expected,” Kazumi Tanaka, an IPO analyst at DZH Financial Research Inc. in Tokyo, said of Wednesday’s trading. He expects the shares to keep rising because he estimated only about 8 percent of investors who purchased the stocks in the IPO actually sold during the morning.

The three companies have a combined market value of 17.5 trillion yen, up from 14.1 trillion yen after the IPO was priced. The total value is similar to Cisco Systems Inc., the world’s 46th biggest company, data compiled by Bloomberg show.

Japan Post’s offering put 11 percent of each company in private hands. The government plans to eventually sell all of the bank and the insurer through additional offerings and retain a third of the parent. Some of the proceeds will be used to rebuild areas in the northeast that were damaged by the 2011 earthquake and tsunami.

Insurer Soars

Japan Post Insurance Co. jumped the most because it sold the fewest shares in the initial offering, said Hirozumi Kobayashi, an analyst who covers IPOs at Fisco Ltd. in Tokyo.

“There were investors who tried to buy the three companies at the same time and it tightened the supply-demand balance,” Kobayashi said. The insurer offered 66 million shares in the IPO, while the bank and holding company sold more than 400 million each.

The holding company was priced at 1,400 yen in the IPO, the equivalent of 0.41 times the book value of its assets. Japan Post Bank, the nation’s biggest holder of deposits, was priced at 1,450 yen, or 0.47 times book value, less than the average of about 0.7 times at Japan’s three biggest lenders. Japan Post Insurance, the nation’s largest insurer by assets, was priced at 2,200 yen, or 0.67 times book value.

Japan Post Bank has a market value of 7.5 trillion yen based on the close of trading Wednesday, making it the nation’s second-biggest bank, ahead of Sumitomo Mitsui Financial Group Inc. The company, the biggest holder of Japanese government bonds apart from the central bank, is diversifying its 207 trillion yen asset portfolio to boost returns.

The bank may boost its allocation to equities “a little,” from the current 2 trillion yen, the unit’s President Masatsugu Nagato said in an interview in Tokyo. It’s also considering putting money in alternative investments such as private equity and U.S. real estate investment trusts, he said.

Privatizing Japan Post, whose origins date back to 1871, was the brainchild of Abe’s predecessor and mentor Junichiro Koizumi, who won an election 10 years ago after campaigning for the sale. He argued that the sale of the postal group would help to reduce wasteful public spending.