TOKYO Japanese railway and property conglomerate Seibu Holdings slashed the estimated price of its initial public offering by as much as a third on Wednesday, leading its top shareholder Cerberus to forego an exit from an often fraught relationship.
The scaled-back expectations for what would have been one of Japan's biggest IPOs this year comes as confidence in the economy wavers, weakening demand for Japanese stocks, which are currently the worst performers in developed markets.
Stock offerings by smartphone screen maker Japan Display (6740.T) and battery maker Hitachi Maxell (6810.T) have also faltered in their market debuts in recent weeks.
"Japan's market has been falling since the start of the year, with real estate shares and real estate investment trusts in a decline. The initial 2,300 yen price was just too high," said Yasuo Sakuma, portfolio manager at Bayview Asset Management.
"My impression is that pricing for large deals such as this one is becoming difficult," he said.
Seibu said it was dropping the tentative price of its IPO by as much as 30 percent to 1,600-1,800 yen per share from the initial estimate of 2,300 it announced in March.
It also plans to cut the number of shares offered to 27.8 million from an earlier 80.9 million as Cerberus chose to not sell any of its 35.5 percent stake in the IPO. Cerberus had previously planned to sell a 15.5 percent stake.
The lowered price estimate, which values the company at 547-616 billion yen compared to an earlier 787 billion, comes as investor confidence in Prime Minister Shinzo Abe's economic stimulus policies fades.
Japan's benchmark Nikkei share index .N225 has fallen around 12 percent so far this year after a 57 percent rally in 2013. The U.S. S&P 500 .SPX is flat so far this year, while the STOXX Europe 600 is up 1.7 percent.
People familiar with the Seibu IPO, who asked not to be named because of the confidential nature of discussions, said underwriters had opted for a lower price after investors balked at the earlier estimate.
U.S. private equity firm Cerberus found the new price unacceptable and opted to wait for a market recovery, they said.
Other sources familiar with recent negotiations said Cerberus had indicated it would not participate if the offer price was below 2,000 yen. Cerberus declined to comment on Wednesday.
The official IPO price is due to be announced on April 14, with the shares expected to list on the Tokyo Stock Exchange on April 23.
Other shareholders including Citigroup Capital Partners, UBS Securities, Norinchukin Bank and the Development Bank of Japan are taking part in the offering as planned, Seibu said.
The failure of the IPO to offer an exit to Cerberus is the latest twist in a relationship that has become a symbol of tensions between Japanese management teams and foreign investors.
Cerberus led a bailout of Seibu in 2006 following a scandal involving falsified shareholder records which led to its delisting. The U.S. private equity company was said to have paid an average of around 1,000 yen for each Seibu share at that time, although the fund has never confirmed the price.
Earlier this year, Cerberus and Seibu appeared to have set aside differences after a difficult 2013 during which they clashed over when the company should be listed and at what price. The battle included a failed attempt by the U.S. fund to take control of the Japanese company's board.
Seibu earned public sympathy when Cerberus suggested selling the company's popular Seibu Lions baseball team and to shut down unprofitable local rail lines.
Seibu said in a filing on Wednesday that Cerberus was now supportive of the company's business plans and had no plans to intervene in management or increase its stake further.
"They have shown a high regard for our management and business, and have been greatly cooperative with the listing," a Seibu spokesman said.
(Additional reporting by Tomo Uetake and Taro Fuse; editing by Dominic Lau and Tom Pfeiffer)