After 20-Fold Gain in Shares, Takara Leben Aims for Second Act

  • Takara Leben starts Japan’s first listed infrastructure fund
  • Company bundling revenues of 10 solar plants into fund

In 2010, a small developer caused ripples in Japanese financial circles by becoming the first company to raise capital using a rights issue. Now it’s doing it again, this time by starting the nation’s first listed infrastructure fund.

Takara Leben Co. can never be accused of standing still. When the financial crisis battered its real estate business, the company returned to profit by winning customers from the nation’s elderly and building apartments generating power from the sun. Then, in 2013, it moved into developing its own solar plants. The firm is bundling the revenues from 10 of them into a fund that lists in Tokyo on Thursday.

The first fund in an infrastructure market started by the Tokyo Stock Exchange more than a year ago gives return-hungry investors a new option in a country where most sovereign debt trades at yields below zero. It also signals a first step in state plans to seek private money to renovate the country’s vast and aging social edifices. But for Takara Leben, it’s just the next stage in a rebirth that’s seen its stock price jump more than 20-fold since its low in 2008.

“I thought there’s no way we’re missing this,” Takara Leben Co. President Kazuichi Shimada said in an interview in Tokyo. “I don’t know why everyone else hasn’t been doing it.”

The infrastructure fund allows Takara Leben to expand future sources of profit as the company seeks to quadruple the electricity it generates from solar power. Going public also raises its profile with investors, said Toshiya Kitagawa, a director in charge of corporate planning at the company.

A tax-law change from April has also helped. Certain funds investing mostly in renewable energy are now exempt from corporate tax for 20 years, up from the previous 10. Shimada says his company would have listed the fund even without this tailwind.

State support helped lure Takara into the business in the first place. The government’s feed-in tariff program, introduced in 2012, set fixed prices for power providers selling energy to the country’s utilities. While prices under the system have since come down, Takara Leben got in when they were still high.

“They’re guaranteed for 20 years,” Shimada said. “There’s nothing more attractive than a scheme like that. The stable income was a big incentive.”

Market Origins

Japan Exchange Group Inc., the nation’s main bourse operator, started the infrastructure fund market in April last year. The exchange acknowledged the importance of tapping into private sector funds, while faced with the need to maintain and repair existing infrastructure and a harsh fiscal climate. There’s also growing interest in investing in such facilities that would produce stable profit.

Takara Leben’s fund provides investors’ access to the revenues from the company’s 10 solar power plants and will have a 5.8 percent yield at the time of listing. Overseas asset managers are more enthusiastic about the fund, with three U.S. managers having already agreed to buy at the asking price, according to Kitagawa. Domestic money managers are often still researching the benefits of investing in infrastructure funds, he said.

Japan’s life insurers have also shown interest, but they need to change internal rules before investing in infrastructure funds. Such funds already exist in South Korea, Thailand, Singapore and Australia. While the $1.27 trillion Government Pension Investment Fund has been putting money into infrastructure since 2014, Takara Leben’s fund is still too small for the pension giant to consider.

Who’s Buying

The Takara Leben Infrastructure Fund had 8.7 billion yen ($79 million) when it listed on Thursday, and the company aims to expand this to 100 billion yen by issuing more shares over time. It’s seeking to expand output from its solar plants to 200 megawatts from 53 MW. One megawatt provides electricity for approximately 40,000 households, according to Shimada. 

Takara is also considering buying existing plants in the secondary market, and may branch out to other energy sources such as biomass in the long-term.

Shares of the fund opened at 109,900 yen on its trading debut Thursday, and has jumped as high as 120,000 yen since then.

Rights Issue

This isn’t the first time the condo builder raised capital in a previously untried way in Japan. In 2010, Takara got 5 billion yen using a rights issue after the bourse relaxed rules on issuing new shares only to existing holders. That money was used to purchase property for various arms of its development business. Kitagawa said they probably could have only raised 2 billion to 3 billion yen through more conventional means such as a straight equity sale.

“We needed the capital at that time,” says Shimada. “We gave it a try while we were still trying to get back on track after the financial crisis.”

The company was successful in developing solar-powered condos both in the suburbs and regional cities after the financial crisis. The 2011 earthquake made energy sources a pertinent issue for consumers. Many of its rivals were also weeded out during the crisis, says Kitagawa.

Not all investors are optimistic of the listing. “The fund’s characteristics are closer to equities than bonds,” says Tetsuo Seshimo, a portfolio manager at Saison Asset Management Co. in Tokyo. “For investors who only have cash for example, putting assets into just one business area will be risky.”

Meanwhile, other companies are taking note. Ichigo Asset Management Ltd. said in April it will establish a solar power-focused infrastructure fund and have started listing preparations. Sparx Group Co. shifted its strategy on bringing its funds to market last month, but still operates several infrastructure funds, including those focused on renewable energy.

That’s no surprise to Shimada, whose company has been trying new things for much of the past decade.

“It doesn’t make sense not to get involved in something like this,” he said.

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