The Japanese government is planning to sell its shares in Japan Airlines (JAL), putting an end to its two and a half year control of the company. JAL was given a ¥350bn injection by the state-owned Enterprise Turnaround Initiative Corp of Japan (ETIC) in January 2010. But the company has quickly moved back into profit, and the government is ready to let it become a private company.
ETIC is selling 175m shares for around ¥3,790 each, and wants to close the deal in September. The offering represents the fund’s total 96.5% stake in the company, a chunky float by any standards. But there is some logic to selling it all at once.
The government could depress the secondary performance of the stock if it only sold half of its stake now, leaving investors wary of chunky block sales in future. A gradual sale could make the government more money, and appears less risky, but the high-profile deal will help underscore the company’s stark turnaround, and will set a national champion on a good course for the future. It was also give the government a profit of around 50%.
These are all good things, and it is clear that privatising the company makes a lot of sense. But why now?
Japan’s ECM market has certainly seen a revival in 2012 from the dire performance of 2011, when the country was rocked by the tragic combination of an earthquake, tsunami and nuclear disaster. But this improvement in volumes should not be too alluring. Volumes were always likely to be down after last year's catastrophic earthquake and tsunami, and the rise in issuance does not point to an ideal market environment.
The stock market is still volatile but, worse than that, investors who want exposure to a Japanese airline have just had their chance. The issuer’s main domestic rival, All Nippon Airways (ANA), raised ¥160.08bn from a follow-on offer last month, pushing ahead with the deal to move in front of the looming JAL privatisation.
It makes little sense to offer local or international investors exposure to another airline so soon after the last deal, especially given that many investors are off on holiday. The fiscal year is not complete until the end of March; the government has plenty of time to sell the deal.
Japan is right to want to privatise the airline. There is no question of that. But offering almost the entire share capital of a company during a slow market, and in the wake of a deal from a big rival, does not seem a sensible flight plan.