October IPO Market Summary and Outlook
In October, there were 17 IPOs. Of these offerings, three were on JASDAQ, five on TSE Mothers, two on Osaka Hercules, three on Nagoya Centrex, one on Fukuoka Q-Board, and three on the TSE first section. At first glance, this number appears to be much higher than the nine IPOs in October 2005. However, there are normally many IPOs in October each year because so many Japanese companies end their fiscal years in March.
Attracting the most attention were the offerings of Nomura Real Estate Holdings and Idemitsu Kosan, which ranked first and second, respectively, among all IPOs in terms of funds procured.
Nomura Real Estate Holdings procured ¥164.5 billion and Idemitsu Kosan ¥62.3 billion. Together, these two IPOs alone represent more than 30% of all funds raised by IPOs through the first 10 months of 2006. Normally, when mega-IPOs like these take place, they soak up funds that would have otherwise gone to the smaller October IPOs. The result is a lower ratio of opening prices to offering prices. In fact, the average October IPO opening price was only 18.44% above the average offering price, far below the 2006 average of 88.62%.
On the other hand, the high volume of shares sold at these large IPOs means that shares can be sold in small amounts to many individual investors. Because of this, the opening price tends to be relatively high. High prices, in turn, give many investors more confidence about future IPOs and more money to spend.
The opening price of Nomura Real Estate Holdings was ¥3,900, 11.4% above its ¥3,500 offering price. Idemitsu Kosan’s ¥10,500 opening price topped the offering price by 10.5%. Both figures represent impressive performances for IPOs of this scale. Moreover, the stock price of Nomura Real Estate Holdings has remained firm. This performance has probably eliminated the so-called “IPO allergy” of individual investors, who shunned these offerings because the stock prices of so many 2006 IPOs have dropped below the offering prices. Thanks to Nomura Real Estate Holdings, investors now have high expectations for IPOs in November and the following months.
One notable characteristic of the October IPOs is the two offerings of companies linked to today’s high volume of mergers and acquisitions. GCA is an M&A advisory firm led by Nobuo Sayama that has enjoyed much media exposure. Nihon M&A Center that handles M&A deals primarily involving business succession for small and midsize companies. These two IPOs symbolize the emergence in Japan of a full-fledged M&A infrastructure.
Another October highlight was the two IPOs of companies established less than three years ago. GCA has been operating for only 30 months. Acrodea, which develops cell phone software, needed only 27 months to go public. These IPOs demonstrate that capital markets still function as a source of growth capital for very young companies despite today’s much tougher standards for internal controls and other management systems.
After hitting its 2006 low in June, the Nikkei Average completed two up-down cycles that ended with the September 26 low. The average is currently in its third upward phase since June, but this phase has reached a turning point. Big companies are driving the average up while we still see no signs of a recovery in the stocks of small and midsize companies. But the Aozora Bank listing scheduled for November 14 may benefit from the current popularity of big companies. If this happens, individual investors who are already emboldened and enriched by the successful Nomura Holdings and Idemitsu Kosan offerings would become even more confident about IPOs. Therefore, confident individual investors may have a positive impact on the IPO market for the remainder of 2006.
As I explained earlier, the large number of IPOs this time of year tends to hold down the ratio of opening prices to offering prices. In January, though, when the number of IPOs is usually small, investors become much more interested in recent IPOs. Consequently, recent IPOs where the opening price was low and the company’s operating results are strong may very well be excellent investments at this time.
Nishibori Takashi
Tokyo IPO.com Chief EditorEmail to :editor@tokyoipo.com