Japan's giant IPO becomes tiny as households flock to stocks

[TOKYO] Appetite for the world's biggest equity listing this year shows the interest of a group that could swallow it more than 600 times over: Japan's stock-averse households.

While the initial public offerings of Japan Post Holdings Co. and its banking and insurance units may raise as much as 1.4 trillion yen (S$16.2 billion), that's less than 0.2 per cent of the money households have in cash or at the bank. The government priced stakes in the two subsidiaries at the top end of marketed ranges, signaling heavy demand from the nation's individuals, who are earmarked to buy most of the shares.

"Never underestimate the purchasing power of Mr. and Mrs. Watanabe," Jesper Koll, chief executive officer of WisdomTree Japan KK, said in an interview in Tokyo. "One of the goals for this privatization is that this becomes a catalyst to increase risk appetite and engender a portfolio shift from deposits into equities. Given the deposit base, it isn't going to be particularly difficult." The Topix index is headed for its steepest monthly gain since April 2013, easing concerns that stocks would fall as investors pulled money from existing equities. Japan Post companies have implicit government backing, which is drawing in individuals who would otherwise avoid equities, according to Koll. The nation's households have just 11 per cent of their wealth in shares.

The IPOs of the three companies are set to be Japan's biggest state asset sale since Nippon Telegraph & Telephone Corp in 1987. More than 70 per cent of the offering is aimed at individuals. The government received orders for all shares in the first two days of bookbuilding, people familiar with the matter told Bloomberg last week.

Japan Post is a household name backed by a government set on ensuring the listing is a success, making it an attractive way for people to start investing in stocks, according to Keiichi Ito, chief quants analyst at SMBC Nikko Securities Inc. in Tokyo.

"Individuals think the shares are cheap," said Mitsuo Shimizu, deputy general manager at Japan Asia Securities Group Ltd. in Tokyo, who says many housewives and salarymen are opening new brokerage accounts. "And they believe the dividend yields will be high." Japan Post Bank is priced at 0.47 times book value, while the figure for the insurance unit is 0.67 times. If the holding company's shares are also set at the top of its range on Monday, it will be valued at 0.41 times. Japan Post Holdings will yield 3.3 per cent annually in dividends, the company said. The banking and insurance arms will deliver 3.4 per cent and 2.5 per cent, respectively.

Individuals have plenty of dry powder. Money held in brokerage accounts to be used for stock investing stood at 10.7 trillion yen at the end of September, Investment Trust Association of Japan data show.

"I don't think there'll be much shifting out of other stocks for this IPO," said Toshihiro Hirao, president of Asuka Asset Management Co in Tokyo. "There's a lot of money on standby. I think a lot of buying will come from that." Japan's households held a record 1,717 trillion yen in assets at the end of June, according to central bank data, with just 182 trillion yen of that in stocks. Some 893 trillion yen, or about half, was in cash or bank deposits.

Fears of a selloff in other banks and insurance companies are overblown, according to SMBC Nikko's Ito. Passive funds will free up the cash needed to acquire Japan Post shares by light selling across all sectors rather than offloading only peers, he said. About 20 per cent of purchases of the Japan Post group's shares will come from passive funds tracking the Topix, MSCI Japan Index and FTSE Japan Index, Ito said. The three firms will together make up less than 0.3 per cent of the Topix when added to the measure at the close on Dec 29, according to estimates by Mizuho Securities Co.

Any selling of other shares will be "easily absorbed," Mr Ito said. "Passive investments have increased slightly over the years, but it's not enough to impact the overall market."

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