Next share offering now uncertain for Japan Post
Government faces tough choice as Nomura Real Estate acquisition goes sour
TOKYO -- Japan Post Holdings announced Monday that it will not pursue acquisition of Nomura Real Estate Holdings, creating a headache for the government, which was gearing up for a second offering of its shareholdings in the former state monopoly as early as next month.
Japan Post Holdings ended the day on the Tokyo Stock Exchange at 1,381 yen, down 0.86% from last week's closing price. This is bad news for the Japanese government, which holds a roughly 80% stake in the entity. Under the postal privatization law, the government is expected to offload its shareholdings in Japan Post Holdings in several stages to reduce its interest to slightly more than 30% as soon as reasonably possible.
In the November 2015 IPO, the government raised about 1.4 trillion yen ($12.58 billion) by selling a roughly 20% stake at 1,400 yen per share. Its plan is to sell more stakes and raise some 4 trillion yen by fiscal 2022 and use the proceeds to fund reconstruction projects in the areas devastated by the catastrophic earthquake and tsunami in March 2011.
In accordance with the plan, the Ministry of Finance picked lead managers in March for the second offering. This opened the door for selling more Japan Post Holdings shares as soon as July, but the Monday announcement may jeopardize the plan because it has created uncertainty over Japan Post Holdings' stock price. Even at the current price level, the government would be able to raise 4 trillion yen as planned, but "we will seek a timing that will let us sell as high as possible, since the proceeds will be used as a funding source for reconstruction projects," a high-ranking Finance Ministry official said.
To secure a better price, timing is crucial. If the government decides not to float the second tranche in July, the next good window would be "from September to late October," a market professional said. Trading will be thin in August, and a period leading to the Christmas season is not a practical choice either because U.S. investors will not be very active. This means the second offering may not come until next year if the government does not go for it by this autumn.
And the government may have good reason not to rush. Aside from the government, individuals make a high proportion of the current Japan Post Holdings shareholders. Tokyo is likely to face criticism from those individual investors if it decides to float the second tranche at below the IPO price.
The sheer scale of the remaining government stake in Japan Post Holdings means that it will take two or three more rounds of share offerings for the government to sell off the planned stake. As Japan Post Holdings' new growth strategy and share price performance have become uncertain following the Nomura announcement, the roadmap for the share offerings have also become unclear.
Nomura Real Estate Holdings shares ended Monday 13.77% lower at 2,110 yen after sinking as low as 2,077 yen at one point.
The company suffered a far bigger stock price decline than Japan Post Holdings because much of its recent gain came on the expectation that it would be bought out. The company's stock price will fluctuate wildly now that its growth and M&A strategies have become unhinged, a market player predicted.