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The ¥1.3trn (US$11.5bn) follow-on share offering of Japan Post Holdings showed how careful structuring can overcome a volatile share price and challenging market conditions.
The Japanese government was keen to press ahead with the second stage of its privatisation of Japan Post, having raised US$12bn from a three-pronged listing in November 2015 of Japan Post Holdings and subsidiaries Japan Post Bank and Japan Post Insurance.
The holding company structure made for a simpler process the second time around, with only a stake in Japan Post Holdings on the block.
The mammoth sell-down, however, was anything but straightforward. The deal would triple the free-float in a stock that was already struggling to stay above its ¥1,400 IPO price, weighed down by writedowns from its 2015 acquisition of Australia’s Toll Holdings.
The share price was all-important. Given the size of the stake on offer, every ¥1 move in the stock was worth almost US$9m to the government. Ministers were also keen to avoid disappointing retail investors that had supported the original IPO and would not be happy to see the stock sink further.
About 76% of the offer was earmarked for Japanese retail buyers, in line with Japan’s push to divert more of the country’s savings into investments.
To overcome the constraints, Japan Post included a greenshoe option of 76m shares in its 990m-share offer, the first-ever state sell-down to use an overallotment structure. The company also simultaneously conducted a share buyback of up to ¥100bn to address potential overhang concerns and enhance shareholder returns.
The two features helped reverse a decline in the stock when news of the offering broke in early September, and were especially important given the volatile market backdrop.
Before the deal was officially announced on September 11, Japan’s stock market had fallen 4% since the start of August as the risk of military conflict involving North Korea increased.
The shares eventually were priced at ¥1,322 each, the top end of a 2%-4% discount range to the September 25 close and only 3.5% below September 1’s undisturbed stock price.
International investors took 20% of the shares and Japanese institutions the remaining 4%. The international book was covered 2.5 times with about 150 lines, while the domestic retail portion was around 1.3 times covered.
The sale was Japan’s biggest follow-on since Nippon Telegraph and Telephone in 1999, and comfortably the biggest equity capital markets deal of the year in Asia-Pacific.
Together with the buyback, the government raised about ¥1.4trn and reduced its holding to 56.9%.
Daiwa, Goldman Sachs and Nomura were global coordinators. Daiwa, Mitsubishi UFJ Morgan Stanley, Mizuho and Nomura were domestic lead managers. Bank of America Merrill Lynch and Goldman Sachs were lead managers on the international side.
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