Larger IPOs Set to Test Dominance of Smaller Listings in Japan

Japan is poised to welcome larger share-sale debuts in the coming months, invigorating a market that has mostly seen debuts raising less than $100 million in the past decade.

Tokyo Metro Co announced its IPO

Tokyo Metro Co., the subway operator, announced last week that its initial public offering aims to raise approximately ¥319.6 billion ($2.2 billion), positioning it for Japan's largest listing since SoftBank Corp.’s $21 billion IPO in 2018. This offering coincides with Rigaku Holdings Corp., backed by Carlyle Group, which is planning to raise about ¥109.6 billion in its upcoming debut next month.

The momentum for new listings appears to be increasing as the Nikkei 225 Stock Average has rebounded over 20% since hitting a low on August 5. This fiscal year, which began on April 1, has seen Japanese share sales reach a 20-year high, demonstrating that investor interest in new stocks remains strong despite last month’s market downturn.

“The backdrop is positive,” noted Kelvin Leung, a portfolio manager at Robeco Hong Kong Ltd., regarding the overall environment for Japanese IPOs. “If the fundamentals are strong and valuations are reasonable, I believe this presents a good buying opportunity.”

Since 2014, Japan has seen over 1,000 listings, with nearly 90% raising less than $100 million, according to Bloomberg data. This year, share-sale debuts have collectively raised $1.4 billion, and with the anticipated listings from Tokyo Metro and Rigaku, that total is expected to approach the $4.4 billion raised in all of 2023.

“The market is currently in a fairly healthy position as some of the excesses have been corrected,” said Zuhair Khan, who manages a long-short fund at Union Bancaire Privée. He mentioned that sectors with heightened interest, such as artificial intelligence and tourism—benefiting from the post-COVID economic recovery—may have achieved better valuations prior to the August decline. “However, for most sectors, I believe now is a favorable time for companies to enter the market and pursue IPOs,” he added.

Tokyo Metro plans to sell shares

Tokyo Metro forecasts a dividend of ¥40 per share for the fiscal year ending March 2025, implying an yield of 3.6% based on the indicative price.

Tokyo Metro is set to offer shares on October 23, while Rigaku aims for its debut on October 25. Other upcoming IPOs include Kioxia Holdings Corp., a manufacturer of semiconductor memory products, which is expected to raise around $500 million, and Intermestic Inc., the parent company of the Zoff eyewear store chain.

"The dividend yield appears 'relatively high,'” said Mitsushige Akino, president of Ichiyoshi Asset Management. “While it’s not a stock that experiences rapid growth, it is expected to maintain a stable business performance regardless of the economic climate.”

The Ministry of Finance currently holds approximately 53.42% of the shares, while the Tokyo Metropolitan Government owns the remaining 46.58%. Legislation mandates that the national government sell its shares in Tokyo Metro by March 2028 to repay debt incurred following the 2011 earthquake and tsunami.

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