Tokyo IPO Monthly Report -December 2008-

A total of 49 companies will conduct IPOs in 2008, including those through the end of the year. This represents a roughly 60% decline from 121 companies last year. ?It will also be the first time since the markets for emerging companies were established in 1999 that the number of IPOs will be in the double-digit range.
In our reports this year we have written many times about the factors behind this decline in the number of IPOs, so we invite you to review these.

First, we will analyze this year's IPOs from the perspective of the companies conducting offerings. Including those companies going public in December, the amount raised this year will be 137.7 billion yen, which is just one-tenth the 1,460.2 billion yen raised in 2000 (the peak year). Of course, such a simple comparison has little meaning, since the number of IPOs has fallen into the double digits. Therefore, if we narrow the field to the three markets for emerging companies and if we look at the average amount raised per deal since 2000, the average for 2008 was an unexpectedly healthy 2.3 billion yen. But Seven Bank debuted on the Jasdaq this year, raising 52.0 billion yen. If this IPO is excluded, the amount raised per deal is just 1.0 billion because many of the IPOs were small. Moreover, about 10 companies raised less than 500 million yen and there are some companies preparing to go public for which it is doubtful whether the aim of the IPO is to raise capital, so this may have an effect on the number of companies conducting IPOs next year.

	2000	2001	2002	2003	2004	2005	2006	2007	2008
No. of IPOs	203	169	124	121	175	158	188	121	49
Amount raised (￥100mn)	14,602	7,431	4,452	6,514	11,549	8,241	12,979	4,905	1,377
Average amount raised (￥100mn)	71.9	44.0	35.9	53.8	66.0	52.2	69.0	40.5	28.1
	2000	2001	2002	2003	2004	2005	2006	2007	2008
No. of IPOs on the three emerging company markets	157	147	100	100	143	123	134	97	40
Amount raised by the above ￥100mn)	7,883	4,490	1,420	1,880	3,043	3,811	3,428	1,620	921
Average amount raised (￥100mn)	50.2	30.5	14.2	18.8	21.3	31.0	25.6	16.7	23.0

If this continues, stock markets will cease to function as a place for companies to raise capital and the equity finance route will gradually shut down.

Next, we will look at IPO trends from an investor standpoint.

The opening price for the 40 companies that have debuted up to November was an average of 19% higher than their offering price. However, the debut price was higher than the offering price for only 16 of the IPOs. In other words, the batting average for investors was just .400. ?Especially since Lehman Brothers collapsed losers have outnumbered winners by 8 to 2, and there has been a continuous losing streak since Linical debuted on October 27.
According to source at a certain Internet brokerage, although the number of investors participating in the bookbuilding process has not declined that much, since November a growing number of number of winning investors have been giving up their rights. Interest in IPOs has been steadily waning due to the more than 50% chance of suffering a loss after getting in on an offering. And looking at secondary market price trends, there are a growing number of issues where the share price has plunged almost instantaneously after the issue has debuted below the offering price.

Looking at valuations for the companies that conducted IPOs in 2007 and 2008, their share prices have declined to the point where they are cheaper than the market average in terms of both PER and dividend yield. It is the nature of the market that only individual investors buy IPOs, and it seems that these individual investors are ignoring valuations and selling simply because the share prices are declining. Some of the recent IPOs that are closing their books in December have dividend yields above 5%, and this warrants a little more attention.

Market	No. of companies	Companies in the red	PER (x)	Dividend yield (％)
Jasdaq	58	6	6.8	4.4
TSE Mothers	33	5	15.6	1.2
OSE Hercules	31	3	8.3	3.2
TSE 1＆2	18	3	10.8	4.4

However, to determine whether these are really safe investments due to their low PERs and high dividend yields, it is necessary to measure them against some other yardsticks. These yardsticks are: 1) positive free cash flow (operating cash flow + investment cash flow from the cash flow statement presented in the earnings release (kessan tanshin), 2) liquidity (current assets ÷ current liabilities) above 200%, and 3) no borrowing from financial institutions. If these conditions are met, it is virtually certain that the company will pay dividends as planned and the stock is suitable for investing based on dividend yield.

Besides investing in dividend yield stocks for income, another technique is to aim for capital gains, but in this case the investor must be extremely concerned with the outlook for share prices.
The table below shows the change in share price from the offering price by market for issues that were launched in 2008. All of the markets have declined sharply from their offering prices. However, upon closer examination, share prices as of the end of November have rebounded from the end of October.

Change from Offering Price for 2008 IPO Issues

	No. of issues	10/30 vs. offering price	11/29 vs. offering price
TSE Mothers	11	5.5%	13.7%
Jasdaq	11	-27.1%	-22.2%
OSE Hercules	7	-44.0%	-42.7%
TSE 2nd Section	4	-43.4%	-28.4%
All markets	36	-24.3%	-20.4%

Although the indices for all of these markets declined from the end of October to the end of November, IPO issues bucked the trend and advanced. In most years, IPO issues are sought by buyers from mid-December to January. In view of the valuations for this year's crop of IPOs, this phenomenon could happen again this year. For people whose purse strings are tight, giving children and grandchildren IPO stocks instead of lottery tickets as New Years gifts might yield better chances of winning.



Nishibori Takashi
Tokyo IPO.com Chief Editor Email to :editor@tokyoipo.com