Daily Management Review

Japanese Line to hold the year's largest IPO in the IT sector


Japanese Line company, which messenger competes with WhatsApp, is preparing an initial public offering on two exchanges in Tokyo and New York. Market volatility that followed the British referendum on the country's exit from the EU (Brexit), had no effect on Line plans. It is expected that the IPO will allow the company to gain up to $ 1.3 billion.

After the British voted for withdrawal from the EU, investors began to dump stocks. This has created additional risks for Line’s IPO, despite the fact that investors are skeptical about the company's growth prospects given Facebook’s Asian expansion. Nevertheless, on Tuesday Line announced its readiness to sell 35 million of its shares at a price in the range of 2700-3200 yen. If successful, this will be the largest IT IPO in 2016. Given the oversubscription option on 5.25 million shares, the deal could bring the company up to 128.8 billion yen ($ 1.3 billion). Thus, Line’s market capitalization will be about 670 billion yen ($ 6.6 billion). The pronounced number exceeds rate of competing Korean company Kakao, whose market capitalization is now $ 5.2 billion. 

Line indicated estimated share price of 2,800 yen during announcement of plans to hold an IPO in mid-July 2016. Implementation of the original plan had been delayed for two years, and now leaders of investment funds noted a decrease in investor interest in high-tech start-ups. Outcome of the Brexit voting further strengthened caution of market participants. The vote was held on Thursday. In the following days, indices of Nikkei Stock Average and S&P 500 have fallen down by more than 5%. Seeing this, Line’s management postponed revealing price range for its IPO for a day. 

Line was founded in 2000. Its messenger has become particularly popular in 2011. Then, Japan was shaken with the earthquake and tsunami. The telephone line was broken and the mobile app had become one of the main means of communication. Then, Line with its attractive emoticons has spread to other Asian countries.

Line’s business is controlled by Naver, an operator of the largest Internet portal in Korea. Line application is monthly used by 218 million active customers, two thirds of whom are the people of Japan, Taiwan, Thailand and Indonesia. The Japanese messenger is not much popular in the US and European markets. Yet, the company plans to sell about 63% of new shares in New York during the IPO. Line mostly aims to expand its presence outside of Asia, and eventually compete for the market with Facebook and WeChat.

Line’s revenues rose by 40% last year. Previously, however, the company completed two years of the last three with a loss. Net loss in 2015 amounted to 7.97 billion yen.

source: ft.com