Daily Management Review

Growth Potential To Be Under Scrutiny As Japan To Sell $12 Billion Of Japan Post Holdings


In an announcement that fund managers gave a tepid reception, saying limited growth prospects is likely to dull demand from institutional investors, Japan’s government on Monday said it will sell $12 billion worth of Japan Post Holdings Co Ltd stock.
The postal firm and its two units, Japan Post Bank Co Ltd and Japan Post Insurance Co Ltd. issued initial public offering (IPO) in 2015 and this sale will be the first since then. Earmarked for reconstruction of areas devastated by an earthquake and tsunami in 2011, that sale also raised $12 billion.
“The company lacks growth potential appeal,” said Kazuo Okabe, general manager at Fukoku Capital Management. “I don’t think there will be strong demand from actively managed funds.”
Minimizing the impact of a drop in letter delivery, Japan Post, with 24,000 post offices and 400,000 employees, has spent the internet age. Despite being a distant third by market share, the former monopoly has also had to adjust to a competitive parcel delivery market that is booming thanks to e-commerce.
Aiming to become a global logistics firm akin to DHL operator Deutsche Post AG, the national postal service prepared for its transition to private ownership with an attempt to demonstrate growth potential through acquisitions.
Write down of much of the acquisition of Australian logistics firm Toll Holdings Ltd for A$6.5 billion ($4.9 billion) had to be done by it. Earlier this year, after failing to agree terms, talks to buy Nomura Real Estate Holdings Inc. ended.
“Japan Post cannot expect to realise strong growth on its own, it needs to pursue acquisitions. Management should not be timid about them even after the failure of the Toll deal,” said a ruling-party lawmaker, who is influential over a firm still 80 percent owned by the government. The lawmaker declined to be identified to speak candidly about the matter.
The firm can achieve growth through organic means alone, Japan Post’s chief executive has said.
Worth about 1.3 trillion yen ($12.1 billion) based on Monday’s closing share price of 1,321 yen, the latest sale, including extra shares to cover strong demand, would be equivalent to 22 percent of Japan Post’s outstanding stock.
The offer price will be set from Sept. 25 to Sept. 27.
The sheer size of the offering being difficult for the market to absorb could affect the pricing, analysts said. Thomson Reuters data showed that about 60 percent of total funds raised in Japan’s equity market in 2016 is the worth of the offering.
Up to 100 billion yen worth of shares from the government will be separately bought back by it, Japan Post also said on Monday.
Retail investors were sold about 95 percent of about 80 percent of IPO shares which were offered domestically.
Market participants said that Japan Post’s relatively high dividend yield was of particular appeal to retail investors.
“Still, I think investors would rather choose Tokyo Electron Ltd, which has higher growth expectations,” said Takato Tanikawa, fund manager at Bayview Asset Management, referring to a chip-making equipment maker whose yield is 3.2 percent.
“There are many other stocks with solid fundamentals and similar dividend yields,” he said.