* Fading hopes for Abe reforms dent confidence
* Weak performance by Japan Display also weighs
* Line may list in New York, Skylark pricing seen modest
By Ritsuko Ando
TOKYO, July 31 At the New York Stock Exchange
last September, buoyed by high hopes for Japan's economic
revival, Prime Minister Shinzo Abe urged Wall Street to "Buy my
Abenomics!" Amid sagging growth and Tokyo listing flops,
investors are now looking for a discount.
The Tokyo bourse's Nikkei benchmark is down 4 percent this
year as euphoria over 'Abenomics' - Abe's radical reflationary
policies - has given way to more cautious views of Japan Inc's
recovery. Investors in initial public offerings have little
appetite for frothy valuations with the world's third-biggest
economy likely having shrunk in the second quarter after a sales
tax hike, and industrial output on the wane.
Poor IPO performances earlier this year, most notably the
$3.3 billion offering by Japan Display Inc in March,
mean big offerings expected in Tokyo this autumn will need to be
priced keenly, fund managers say. Japan Display, the supplier of
screens for Apple Inc's iPhone, is now trading 30
percent below its offering price as investors fret about its
ability to compete with cheaper Asian rivals.
Messaging app provider Line Corp, one of the hottest social
media firms in the world, may prove an exception. But the
company, seen worth more than $10 billion, isn't yet certain to
list in Japan and could make its debut solely in New York.
Makoto Kikuchi, chief executive of Myojo Asset Management,
said restaurant operator Skylark Co and staffing agency Recruit
Holdings, need to be modest in pricing aspirations. "Their
offering prices will need to be set 10 to 20 percent below what
are believed to be their eventual share prices, or else they'll
suffer the same fate as Japan Display," Kikuchi said.
Both Skylark and Recruit are expected to list later this
year, although neither has announced details.
Keiji Kuramoto, executive director of Nomura's IPO
department, said Tokyo IPO investors have grown picky. "Not
every listing is trading above the offering price. Compared to
last year, we're seeing more judgments based on individual
companies," he said.
Skylark, operator of several popular restaurant chains, is
expected by market players to return to the Tokyo exchange
around October, some three years after it was bought out by
private equity firm Bain Capital for $2.1 billion in equity.
The company has recently turned profitable after aggressive
restructuring, but some in the market are concerned about the
prospects for a business exposed to consumer spending trends
amid expectations for more Japan sales tax hikes ahead.
The tepid debut of railroad conglomerate Seibu Holdings
, which re-listed in April after slashing its offering
price from initial estimates, was another sentiment dampener.
Seibu's top shareholder Cerberus Capital postponed its
planned exit due to the discounted offering. That left some in
the market sceptical about IPOs involving hedge funds looking to
"The reason I think Skylark might struggle is because it
meets all the conditions of an unattractive IPO: a mature
business, a re-listing, fund-owned, and facing concerns of a
worsening business environment," said Fumio Matsumoto, a fund
manager at Dalton Capital.
Investors said that market view meant owner Bain was
unlikely earn a massive premium to its purchase price, or stray
too much from its peers' valuations. Shares in Japanese
restaurant chains trade at an average multiple of 0.5 times
Some fund managers are also wary of whether there is enough
market demand to process multiple, large-sized IPOs in the
upcoming few months.
Financial sources have said Line is likely to be valued at
well over 1 trillion yen, although the size of the offering is
not yet certain. Nomura and Morgan Stanley are managing
the IPO, according to people familiar with the matter.
Takeo Kusunose, chairman of Japan investment banking at
Merrill Lynch Japan Securities, said demand was solid, if
"There won't be the kind of wild enthusiasm that will lift
up all the shares, but there will be ample funds in the world
for individual companies that have attractive stories," he said.
(Additional reporting by Emi Emoto and Ayai Tomisawa; Editing
by Kenneth Maxwell)