As Abenomics halo slips, Tokyo IPO investors press for value

By Ritsuko Ando

TOKYO (Reuters) - 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 (£2.48 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 judgements based on individual companies," he said.

SKYLARK FOCUS

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 sell assets.

"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 sales.

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 selective.

"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)