Quality, performance makes a trophy year

  • 02 Feb 2007
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By the end of 2006, equity issues in Japan totalled $71bn, up 51% from the $47bn issued in 2005. Of that, convertible issuance rose a healthy $12.5bn, up from the $2.5bn in 2005.

The year was characterised by a variety of themes. Financial sector issuance continued apace, with the jumbo SMFG ($5.26bn) and MUFG ($4.3bn) placements and the Aozora Bank IPO, which despite its weak debut was the second largest IPO to date from Japan. The 'sumo' convertible bond — bonds in domestic format that are retail targeted — returned in the form of big-ticket deals, for example from Fuji Photo Film Corp, Suzuki Motors and Sharp.

Corporate Japan revives confidence

There was a bounty of new issues for organic expansion and acquisition, not for restructuring and recapitalisation, as corporate Japan became more confident in its abilities and its future.

Deals from names such as All Nippon Airways, Mitsui & Co, Elpida, Nippon Building Fund, Japan Retail Fund and Aeon stood out. The big government monetisation programme also notched up a gear, with deals such as the MUFG sale and Mitsui Trust in the financial sector and Toyota Motor Corp, Matsushita and Yamaha in the corporate sector. The government sale theme is one that will, in the next year and beyond, yield many more placements of household name stocks.

The domestic CB market showed that it could yet again match the Euroyen CB market for terms and conditions, as well as offering issuers the opportunity to place the bonds, and therefore potentially the underlying stock, with retail investors.

Investors fire on all cylinders

"In the equity placement market," says Salim Salam, director in the ECM group at Nomura International in London, "we saw a divergence of transaction between those companies or vendors wanting to place largely to retail buyers and those actively seeking foreign participation.

In the retail buyer category, deals such as MUFG, Rakuten, Japan Real Estate and a number of others stand out. In the second category, where the issuers courted foreign holders partly as diversification and partly to improve pricing tension, deals from Aeon, Idemitsu Koan, Japan Retail Fund, Japan Airlines, All Nippon Airways, Mitsui & Co, Mitsui Trust and SMFG are all notable examples.

"Even with the volume of issuance this year and even with some of the transactions targeting purely domestic placement, we have seen retail appetite far exceed the supply," adds Salam. "This augurs very well for the market, as foreign demand is similarly very high, with most international placements many times covered. The result of all this is that new issues and new CBs, even the very large deals, are followed occasionally by modest price weakness and more often by an improvement in the underlying share price."

ANA flies to new heights

One of the year's highlight new capital issues, and one whose outcome set the scene for the year ahead, came in February, when All Nippon Airways, Japan's second largest and most profitable airline, launched what a few weeks later proved to be a blowout ¥101bn new issue. Deutsche Bank and Nomura were joint bookrunners for what was ANA's first equity issue for more than 22 years.

ANA sold 60% of the new shares to Japanese investors and the other 40% overseas. The international offer was more than five times covered and included a Rule 144A placement that helped the US account for 15% of overseas sales, most of which were to investors in continental Europe and the UK.

Salam says there were more than 150 accounts in the international book and that the deal helped boost ANA's foreign ownership from 4% to about 8% and added 14.7% to ANA's issued share capital.

"Despite the initially dilutive nature of the placement," he says, "the deal was extremely well received. The airline is seen as a bellwether for Japan's recovery and investors who like the ANA management, who are enjoying the opportunity to weight up in the stock [are] thereby validating the restructuring efforts of the airline and helping to position the company for expansion within Asia."

The airline's equity story had three main components: domestic market recovery and growth; the explosion of growth in Asia; and fleet, operational and balance sheet restructuring.

"Investors heard and liked the story, which was clearly and decisively articulated," says Salam. "As the third major deal of 2006 after SMFG and Mitsui & Co, it was another example of the increasingly bullish mindframe of corporate Japan, as the country emerges from years of recession and deflation."

JAL's sale hits turbulence

In the same sector as ANA, Japan Airlines in July completed one of the year's few difficult deals in the sale of 750m new shares that raised ¥158bn. This was less than the $2bn the company had hoped for when launching the deal on June 30, but a large slug of capital nevertheless.

Bookrunners Goldman Sachs and Mizuho Securities, along with UBS, the joint arranger on the international tranche, priced the shares at ¥211, nearly 27% below the closing stock price of ¥287 on the evening the deal was launched. The final price was also 4.1% below the market price, with the last two days before pricing being especially tough, as the stock slumped about 13%.

However, enough investors, particularly hedge funds, were still prepared to buy the stock, despite the dilution that 750m new shares — adding 38% to the issued share capital to bring it to 2.732bn shares — meant to shareholder value.

Japan Airlines had been suffering from weak financial results and in 2005 a series of safety-related incidents that threatened its impressive safety record. It lost ¥47.2bn ($406m) in the year to March 2006 but had predicted a net profit of ¥3bn this financial year.

The deal leaned heavily on international demand, especially from hedge funds. The overseas tranche was enlarged during the sale from 405m shares to 430m, 57.3% of the total, to compensate for the shortage of interest in Japan. Most of the international orders — as much as 90%, according to some sources — came from short term buyers like hedge funds.

Of the 320m shares sold domestically, institutions only bought about 10% — less than the 20%-30% share they usually take in Japanese equity sales.

Dan Dees, managing director and head of ECM at Goldman Sachs in Tokyo, was pleased to have helped the company refinance. "To raise ¥158bn and fundamentally recapitalise the company was a great accomplishment for JAL and it was an outcome made all the more impressive by the fact that this deal had to overcome so many significant challenges during the execution," he says.

Oil prices spiked to record levels during the roadshow, global equity markets were in turmoil and investors were suffering during some of the worst months for performance in years, while North Korea was testing missiles over Japan.

The successful completion of the deal," Dees adds, "was important to JAL not only because it raised the funds needed to drive the company's restructuring plan and allowed the company to tell its restructuring story to an extremely broad group of investors who participated in the deal but also because it demonstrated that this company has significant access to the public equity markets, even during times of difficulty for the global airline industry."

Mitsui trades on Japan's recovery

Shortly before the ANA deal, Mitsui & Co, Japan's second biggest trading company, in mid-February priced a ¥213.5bn new share issue through Goldman Sachs and Nomura, with half the deal going to international accounts.

The deal was an emphatic sign of Japan's economic recovery. Trading companies, which are in fact diversified manufacturing and services conglomerates, were at the centre of the collapse in Japanese stocks after the bubble burst in the 1980s.

This was the first time for many years that one of the big trading companies had raised so much fresh capital with a public deal, and although the news surprised the market, banks and investors relished exposure to the stock.

Another milestone new capital issue came in mid-July, when chipmaker Elpida Memory, Japan's largest maker of computer memory chips, priced a roughly ¥140bn new share issue through Merrill Lynch and Nomura.

Local investors bought 52% of the offer and international accounts the rest. Of the 14.4m shares allocated to overseas buyers, about 30% went to US institutions, 30% to UK buyers and the rest to fund managers in Asia and Europe.

Global buyers chip in for Elpida

"This transaction was also a prime example of the expansionary theme of corporate Japan last year," says Alex Woodthorpe, managing director and head of ECM at Merrill Lynch in Tokyo. "While in previous years, there was an emphasis on new funding for balance sheet repair or restructuring, last year we saw many instances of new equity issues to finance organic expansion or acquisition plans. And the large deals have almost without exception been well supported by investors."

It was a big new issue in terms of dilution and relative to the company's market valuation. Nevertheless, despite the roughly 31% increase (including greenshoe) in Elpida's share capital and despite the deal launching after a difficult period in global equity markets, the shares held up well, dropping only 4% from the date of launch (June 27) through to pricing.

"The outcome of the deal speaks volumes about the approach to the market by Elpida, which made a big effort to articulate its strategy and equity story to global investors," says Woodthorpe. "This was very clearly a transaction in which the participation of international investors, which are the price setters in the technology space, was vital to pricing tension in the book and the tight pricing relative to the theoretical dilution."

Nippon Mining quarries new money

Nippon Mining was another deal that sought out international investors for its ¥70.6bn new share sale in mid-July through Nikko Citigroup as arranger and joint lead manager with Mizuho Securities.

Retail investors took 55% of the issue and that portion was more than three times covered. International investors bought 38% of the sale while domestic institutions took about 7%. The institutional books were more than 40 times covered.

The company said it needed the funds to invest in overseas copper projects over the next three years. Nippon Mining is also expanding its Mizushima oil refining plant in western Japan and its petrochemical plant in Kashima in eastern Japan.

Aeon reveals its autumn collection

In early November Japanese retailer Aeon raised just over ¥206bn in another large new share sale, with Nomura as sole global co-ordinator, and joint lead manager and joint bookrunner Daiwa Securities SMBC for the domestic offer and with joint lead manager and joint bookrunner Goldman Sachs for the overseas offer.

Aeon is Japan's largest supermarket chain and wanted the money to fund new stores, to upgrade existing outlets and for the purchase of shareholdings in two smaller supermarket operators.

"The new issue and the objectives behind the offer fitted perfectly with the corporate and new issue landscape in Japan last year," says Salam. "Japanese companies are expanding aggressively to catch the economic momentum, to counter competition from large foreign rivals seeking footholds in Japan, and also to expand overseas."

Some 40% of the sale went overseas and Aeon articulated to global investors a clear story for the fundraising, which attracted large orders from top quality accounts. The supermarket chain is at the heart of the consolidation in the retail sector and is considering the purchase of stakes in two smaller rivals, Daiei and Maruetsu. The firm is also expanding its presence in China.

The market for large IPOs with global reach was also especially buoyant last year, with notable deals from Idemitsu Kosan, property developer NRE Holdings and of course the largest IPO since NTT DoCoMo, the listing of Aozora Bank, controlled by US private equity group Cerberus.

Idemitsu one of several slick IPOs

Daiwa Securities SMBC and UBS jointly arranged the ¥120.5bn IPO of oil company Idemitsu Kosan in mid-October. The entirely new share offer was intended to help the privately held company invest further in new refineries and overseas, especially in the Chinese lubricants sector

"This was a positive result, despite the IPO arriving at a time when the gloss had come off oil stocks," says Katsumi Fujikawa, joint head of ECM at UBS in Tokyo. "The presence of international investors was an essential part of the pricing strategy, especially as the company was raising fresh capital for expansion."

The final share price of ¥9,500 valued Idemitsu at 12.5 times its own profit forecasts for the fiscal year to March 31, 2007, which represented a modest but fair 10% discount to comparable stocks and a slim discount to Idemitsu's most direct competitor, Nippon Oil, which traded at around 13 times.

Toyota crowns monetisation initiative

The monetisation of government holdings in financial stocks has taken precedence over the sale of government stakes in many other Japanese companies, both large and small. The state picked up many of the holdings during the Japanese banking crisis when it bought cross-shareholding stakes from viable and failed financial institutions.

The result is that the government holds a portfolio of blue chip stocks that will find their way back into the market through a variety of sales. The most obvious examples last year were the big sales of MUFG and Mitsui Trust (see chapter on financial issuers on p16).

In the mainstream corporate sector, the landmark deal emerged in the autumn for Toyota Motor Corp, the bluest of blue chip Japanese companies and the world's most successful car maker. Toyota is the largest company in Japan, with a valuation of more than $210bn, and accounts for more than 4% of the Topix index of leading Japanese companies.

Toyota Motor Corp on November 20 announced it had priced its secondary share offering at ¥6,820, a 2% discount to the closing share price that day. The seller was the Banks' Shareholding Purchase Corp (BSPC), a state entity set up during Japan's financial crisis to relieve troubled financial institutions by buying their industrial shareholdings.

The 43.411m share sale raised ¥296bn and achieved both the BSPC's objectives and those of Toyota, which wanted a controlled, marketed sale of its stock to coincide with its global investor relations effort that usually takes place at this time of year.

As planned, 65% of the issue was placed in Japan and the rest overseas. The international tranche was more than five times covered, and the leads reported a strong response among top quality accounts to the roadshow and management presentation.

Nomura was bookrunner for the sale, with Nikko Citigroup as joint bookrunner on the domestic tranche, that comprised 65% of the deal. Merrill Lynch was joint bookrunner for the international tranche. All three banks were global co-ordinators.

The sale precedes the disposal by BSPC of other household name stakes, and indicates the 2007 and 2008 strategy the Bank of Japan will conduct to similarly dispose of its stakes in corporate Japan.

Panasonic hits the screens

It was also the largest by some distance of the three non-bank monetisation sales by state entities during 2006. The BSPC had earlier sold 1.7% of blue chip Matsushita Electric Industrial and Yamaha Corp.

The sale of stock in Matsushita, the consumer electronics manufacturer and owner of the Panasonic brand, raised ¥97bn through co-ordinator Nomura Securities and joint lead manager Daiwa Securities SMBC.

Like the Yamaha sale that had paved the way and the Toyota monetisation that followed, the BSPC and other government bodies worked with Matsushita to set both the timing and the distribution methodology for the block. "This was another purely domestic sale, with Matsushita Electric's aim to increase retail investor interest through the sale," says Salam.

Masaharu Shinohara, general manager of global ECM at Mitsubishi UFJ Securities in Tokyo, says that there is a healthy pipeline of government sales to be concluded by March 2007, with plenty others to follow in the next fiscal year, some of them from the Bank of Japan's portfolio. As the names include some of Japan's leading companies, for the arrangers that win the mandates, the deals should be large and prestigious.

"The type of companies whose shares are to be sold are mostly very sound financially and not in need of fresh equity, so there will be considerable rarity value also attached to these transactions," Shinohara explains. "Moreover, there is likely to be an effort to distribute most of these shares domestically. Accordingly, distribution to retail will be a key determinant in winning mandates, which will put us in an advantageous position."

Goldman blocks out the competition

Marketed sales of new and secondary stock last year were also complemented by a spate of block sales, many of them handled by Goldman Sachs. The investment bank enjoyed a remarkable year in the equity capital markets in Japan, boosting its position to near the top of the equity league tables, courtesy of the jumbo ¥607bn SMFG sale and the ¥351bn Aozora Bank IPO.

According to public databases, Goldman Sachs' equity underwriting share was at zero in 2003, 3% in 2004, 6% in 2005 and had surged to ??% as of November.

"Our equity underwriting business enjoyed a lot of positive momentum last year, as our dealflow and market share were up dramatically," says Dees, who sees several reasons for the success of the international firms. "The greater presence of private equity capital in Japan this decade and the resultant recycling of their investments into the capital markets is a major contributor. When this type of seller makes its decision on bookrunners and advisors, it does so based on the quality of the solution and advice offered by the bank. We think this is an environment where we can win a disproportionate share of the business."

Dees also cites the rise of global portfolio investment into Japanese stock markets. "The trend line is up, both unequivocally and dramatically. There is a strategic shift from retail to institutional money in this market and as that takes place there is a premium on global distribution capability, which makes the conditions especially fertile for a firm such as ours."

His views are to some extent echoed at UBS, which last year also began to punch more of its weight in the Japanese market. "Our list of deals last year underlined the breadth of our franchise here," says Fujikawa. "Obviously we must play to our strengths, namely global distribution power rather than domestic retail, combined with our strong investment banking expertise, especially our track record in M&A in Japan. As more Japanese firms expand domestically and overseas there is an increasing need for fresh capital and the diversification of shareholder participation across the globe becomes ever more important."

That theme plays out in several deals UBS managed last year, including for example the Idemitsu IPO, which attracted global investors including some, for the first time, from the Middle East. "The rising primary market distribution by issuers and vendors in Japan is a direct reflection of the ownership structure of the Japanese market after several years of net buying by international institutions," Fujikawa concludes. lBy the end of 2006, equity issues in Japan totalled $71bn, up 51% from the $47bn issued in 2005. Of that, convertible issuance rose a healthy $12.5bn, up from the $2.5bn in 2005.

The year was characterised by a variety of themes. Financial sector issuance continued apace, with the jumbo SMFG ($5.26bn) and MUFG ($4.3bn) placements and the Aozora Bank IPO, which despite its weak debut was the second largest IPO to date from Japan. The 'sumo' convertible bond — bonds in domestic format that are retail targeted — returned in the form of big-ticket deals, for example from Fuji Photo Film Corp, Suzuki Motors and Sharp.

Corporate Japan revives confidence

There was a bounty of new issues for organic expansion and acquisition, not for restructuring and recapitalisation, as corporate Japan became more confident in its abilities and its future.

Deals from names such as All Nippon Airways, Mitsui & Co, Elpida, Nippon Building Fund, Japan Retail Fund and Aeon stood out. The big government monetisation programme also notched up a gear, with deals such as the MUFG sale and Mitsui Trust in the financial sector and Toyota Motor Corp, Matsushita and Yamaha in the corporate sector. The government sale theme is one that will, in the next year and beyond, yield many more placements of household name stocks.

The domestic CB market showed that it could yet again match the Euroyen CB market for terms and conditions, as well as offering issuers the opportunity to place the bonds, and therefore potentially the underlying stock, with retail investors.

Investors fire on all cylinders

"In the equity placement market," says Salim Salam, director in the ECM group at Nomura International in London, "we saw a divergence of transaction between those companies or vendors wanting to place largely to retail buyers and those actively seeking foreign participation.

In the retail buyer category, deals such as MUFG, Rakuten, Japan Real Estate and a number of others stand out. In the second category, where the issuers courted foreign holders partly as diversification and partly to improve pricing tension, deals from Aeon, Idemitsu Koan, Japan Retail Fund, Japan Airlines, All Nippon Airways, Mitsui & Co, Mitsui Trust and SMFG are all notable examples.

"Even with the volume of issuance this year and even with some of the transactions targeting purely domestic placement, we have seen retail appetite far exceed the supply," adds Salam. "This augurs very well for the market, as foreign demand is similarly very high, with most international placements many times covered. The result of all this is that new issues and new CBs, even the very large deals, are followed occasionally by modest price weakness and more often by an improvement in the underlying share price."

ANA flies to new heights

One of the year's highlight new capital issues, and one whose outcome set the scene for the year ahead, came in February, when All Nippon Airways, Japan's second largest and most profitable airline, launched what a few weeks later proved to be a blowout ¥101bn new issue. Deutsche Bank and Nomura were joint bookrunners for what was ANA's first equity issue for more than 22 years.

ANA sold 60% of the new shares to Japanese investors and the other 40% overseas. The international offer was more than five times covered and included a Rule 144A placement that helped the US account for 15% of overseas sales, most of which were to investors in continental Europe and the UK.

Salam says there were more than 150 accounts in the international book and that the deal helped boost ANA's foreign ownership from 4% to about 8% and added 14.7% to ANA's issued share capital.

"Despite the initially dilutive nature of the placement," he says, "the deal was extremely well received. The airline is seen as a bellwether for Japan's recovery and investors who like the ANA management, who are enjoying the opportunity to weight up in the stock [are] thereby validating the restructuring efforts of the airline and helping to position the company for expansion within Asia."

The airline's equity story had three main components: domestic market recovery and growth; the explosion of growth in Asia; and fleet, operational and balance sheet restructuring.

"Investors heard and liked the story, which was clearly and decisively articulated," says Salam. "As the third major deal of 2006 after SMFG and Mitsui & Co, it was another example of the increasingly bullish mindframe of corporate Japan, as the country emerges from years of recession and deflation."

JAL's sale hits turbulence

In the same sector as ANA, Japan Airlines in July completed one of the year's few difficult deals in the sale of 750m new shares that raised ¥158bn. This was less than the $2bn the company had hoped for when launching the deal on June 30, but a large slug of capital nevertheless.

Bookrunners Goldman Sachs and Mizuho Securities, along with UBS, the joint arranger on the international tranche, priced the shares at ¥211, nearly 27% below the closing stock price of ¥287 on the evening the deal was launched. The final price was also 4.1% below the market price, with the last two days before pricing being especially tough, as the stock slumped about 13%.

However, enough investors, particularly hedge funds, were still prepared to buy the stock, despite the dilution that 750m new shares — adding 38% to the issued share capital to bring it to 2.732bn shares — meant to shareholder value.

Japan Airlines had been suffering from weak financial results and in 2005 a series of safety-related incidents that threatened its impressive safety record. It lost ¥47.2bn ($406m) in the year to March 2006 but had predicted a net profit of ¥3bn this financial year.

The deal leaned heavily on international demand, especially from hedge funds. The overseas tranche was enlarged during the sale from 405m shares to 430m, 57.3% of the total, to compensate for the shortage of interest in Japan. Most of the international orders — as much as 90%, according to some sources — came from short term buyers like hedge funds.

Of the 320m shares sold domestically, institutions only bought about 10% — less than the 20%-30% share they usually take in Japanese equity sales.

Dan Dees, managing director and head of ECM at Goldman Sachs in Tokyo, was pleased to have helped the company refinance. "To raise ¥158bn and fundamentally recapitalise the company was a great accomplishment for JAL and it was an outcome made all the more impressive by the fact that this deal had to overcome so many significant challenges during the execution," he says.

Oil prices spiked to record levels during the roadshow, global equity markets were in turmoil and investors were suffering during some of the worst months for performance in years, while North Korea was testing missiles over Japan.

The successful completion of the deal," Dees adds, "was important to JAL not only because it raised the funds needed to drive the company's restructuring plan and allowed the company to tell its restructuring story to an extremely broad group of investors who participated in the deal but also because it demonstrated that this company has significant access to the public equity markets, even during times of difficulty for the global airline industry."

Mitsui trades on Japan's recovery

Shortly before the ANA deal, Mitsui & Co, Japan's second biggest trading company, in mid-February priced a ¥213.5bn new share issue through Goldman Sachs and Nomura, with half the deal going to international accounts.

The deal was an emphatic sign of Japan's economic recovery. Trading companies, which are in fact diversified manufacturing and services conglomerates, were at the centre of the collapse in Japanese stocks after the bubble burst in the 1980s.

This was the first time for many years that one of the big trading companies had raised so much fresh capital with a public deal, and although the news surprised the market, banks and investors relished exposure to the stock.

Another milestone new capital issue came in mid-July, when chipmaker Elpida Memory, Japan's largest maker of computer memory chips, priced a roughly ¥140bn new share issue through Merrill Lynch and Nomura.

Local investors bought 52% of the offer and international accounts the rest. Of the 14.4m shares allocated to overseas buyers, about 30% went to US institutions, 30% to UK buyers and the rest to fund managers in Asia and Europe.

Global buyers chip in for Elpida

"This transaction was also a prime example of the expansionary theme of corporate Japan last year," says Alex Woodthorpe, managing director and head of ECM at Merrill Lynch in Tokyo. "While in previous years, there was an emphasis on new funding for balance sheet repair or restructuring, last year we saw many instances of new equity issues to finance organic expansion or acquisition plans. And the large deals have almost without exception been well supported by investors."

It was a big new issue in terms of dilution and relative to the company's market valuation. Nevertheless, despite the roughly 31% increase (including greenshoe) in Elpida's share capital and despite the deal launching after a difficult period in global equity markets, the shares held up well, dropping only 4% from the date of launch (June 27) through to pricing.

"The outcome of the deal speaks volumes about the approach to the market by Elpida, which made a big effort to articulate its strategy and equity story to global investors," says Woodthorpe. "This was very clearly a transaction in which the participation of international investors, which are the price setters in the technology space, was vital to pricing tension in the book and the tight pricing relative to the theoretical dilution."

Nippon Mining quarries new money

Nippon Mining was another deal that sought out international investors for its ¥70.6bn new share sale in mid-July through Nikko Citigroup as arranger and joint lead manager with Mizuho Securities.

Retail investors took 55% of the issue and that portion was more than three times covered. International investors bought 38% of the sale while domestic institutions took about 7%. The institutional books were more than 40 times covered.

The company said it needed the funds to invest in overseas copper projects over the next three years. Nippon Mining is also expanding its Mizushima oil refining plant in western Japan and its petrochemical plant in Kashima in eastern Japan.

Aeon reveals its autumn collection

In early November Japanese retailer Aeon raised just over ¥206bn in another large new share sale, with Nomura as sole global co-ordinator, and joint lead manager and joint bookrunner Daiwa Securities SMBC for the domestic offer and with joint lead manager and joint bookrunner Goldman Sachs for the overseas offer.

Aeon is Japan's largest supermarket chain and wanted the money to fund new stores, to upgrade existing outlets and for the purchase of shareholdings in two smaller supermarket operators.

"The new issue and the objectives behind the offer fitted perfectly with the corporate and new issue landscape in Japan last year," says Salam. "Japanese companies are expanding aggressively to catch the economic momentum, to counter competition from large foreign rivals seeking footholds in Japan, and also to expand overseas."

Some 40% of the sale went overseas and Aeon articulated to global investors a clear story for the fundraising, which attracted large orders from top quality accounts. The supermarket chain is at the heart of the consolidation in the retail sector and is considering the purchase of stakes in two smaller rivals, Daiei and Maruetsu. The firm is also expanding its presence in China.

The market for large IPOs with global reach was also especially buoyant last year, with notable deals from Idemitsu Kosan, property developer NRE Holdings and of course the largest IPO since NTT DoCoMo, the listing of Aozora Bank, controlled by US private equity group Cerberus.

Idemitsu one of several slick IPOs

Daiwa Securities SMBC and UBS jointly arranged the ¥120.5bn IPO of oil company Idemitsu Kosan in mid-October. The entirely new share offer was intended to help the privately held company invest further in new refineries and overseas, especially in the Chinese lubricants sector

"This was a positive result, despite the IPO arriving at a time when the gloss had come off oil stocks," says Katsumi Fujikawa, joint head of ECM at UBS in Tokyo. "The presence of international investors was an essential part of the pricing strategy, especially as the company was raising fresh capital for expansion."

The final share price of ¥9,500 valued Idemitsu at 12.5 times its own profit forecasts for the fiscal year to March 31, 2007, which represented a modest but fair 10% discount to comparable stocks and a slim discount to Idemitsu's most direct competitor, Nippon Oil, which traded at around 13 times.

Toyota crowns monetisation initiative

The monetisation of government holdings in financial stocks has taken precedence over the sale of government stakes in many other Japanese companies, both large and small. The state picked up many of the holdings during the Japanese banking crisis when it bought cross-shareholding stakes from viable and failed financial institutions.

The result is that the government holds a portfolio of blue chip stocks that will find their way back into the market through a variety of sales. The most obvious examples last year were the big sales of MUFG and Mitsui Trust (see chapter on financial issuers on p16).

In the mainstream corporate sector, the landmark deal emerged in the autumn for Toyota Motor Corp, the bluest of blue chip Japanese companies and the world's most successful car maker. Toyota is the largest company in Japan, with a valuation of more than $210bn, and accounts for more than 4% of the Topix index of leading Japanese companies.

Toyota Motor Corp on November 20 announced it had priced its secondary share offering at ¥6,820, a 2% discount to the closing share price that day. The seller was the Banks' Shareholding Purchase Corp (BSPC), a state entity set up during Japan's financial crisis to relieve troubled financial institutions by buying their industrial shareholdings.

The 43.411m share sale raised ¥296bn and achieved both the BSPC's objectives and those of Toyota, which wanted a controlled, marketed sale of its stock to coincide with its global investor relations effort that usually takes place at this time of year.

As planned, 65% of the issue was placed in Japan and the rest overseas. The international tranche was more than five times covered, and the leads reported a strong response among top quality accounts to the roadshow and management presentation.

Nomura was bookrunner for the sale, with Nikko Citigroup as joint bookrunner on the domestic tranche, that comprised 65% of the deal. Merrill Lynch was joint bookrunner for the international tranche. All three banks were global co-ordinators.

The sale precedes the disposal by BSPC of other household name stakes, and indicates the 2007 and 2008 strategy the Bank of Japan will conduct to similarly dispose of its stakes in corporate Japan.

Panasonic hits the screens

It was also the largest by some distance of the three non-bank monetisation sales by state entities during 2006. The BSPC had earlier sold 1.7% of blue chip Matsushita Electric Industrial and Yamaha Corp.

The sale of stock in Matsushita, the consumer electronics manufacturer and owner of the Panasonic brand, raised ¥97bn through co-ordinator Nomura Securities and joint lead manager Daiwa Securities SMBC.

Like the Yamaha sale that had paved the way and the Toyota monetisation that followed, the BSPC and other government bodies worked with Matsushita to set both the timing and the distribution methodology for the block. "This was another purely domestic sale, with Matsushita Electric's aim to increase retail investor interest through the sale," says Salam.

Masaharu Shinohara, general manager of global ECM at Mitsubishi UFJ Securities in Tokyo, says that there is a healthy pipeline of government sales to be concluded by March 2007, with plenty others to follow in the next fiscal year, some of them from the Bank of Japan's portfolio. As the names include some of Japan's leading companies, for the arrangers that win the mandates, the deals should be large and prestigious.

"The type of companies whose shares are to be sold are mostly very sound financially and not in need of fresh equity, so there will be considerable rarity value also attached to these transactions," Shinohara explains. "Moreover, there is likely to be an effort to distribute most of these shares domestically. Accordingly, distribution to retail will be a key determinant in winning mandates, which will put us in an advantageous position."

Goldman blocks out the competition

Marketed sales of new and secondary stock last year were also complemented by a spate of block sales, many of them handled by Goldman Sachs. The investment bank enjoyed a remarkable year in the equity capital markets in Japan, boosting its position to near the top of the equity league tables, courtesy of the jumbo ¥607bn SMFG sale and the ¥351bn Aozora Bank IPO.

According to public databases, Goldman Sachs' equity underwriting share was at zero in 2003, 3% in 2004, 6% in 2005 and had surged to ??% as of November.

"Our equity underwriting business enjoyed a lot of positive momentum last year, as our dealflow and market share were up dramatically," says Dees, who sees several reasons for the success of the international firms. "The greater presence of private equity capital in Japan this decade and the resultant recycling of their investments into the capital markets is a major contributor. When this type of seller makes its decision on bookrunners and advisors, it does so based on the quality of the solution and advice offered by the bank. We think this is an environment where we can win a disproportionate share of the business."

Dees also cites the rise of global portfolio investment into Japanese stock markets. "The trend line is up, both unequivocally and dramatically. There is a strategic shift from retail to institutional money in this market and as that takes place there is a premium on global distribution capability, which makes the conditions especially fertile for a firm such as ours."

His views are to some extent echoed at UBS, which last year also began to punch more of its weight in the Japanese market. "Our list of deals last year underlined the breadth of our franchise here," says Fujikawa. "Obviously we must play to our strengths, namely global distribution power rather than domestic retail, combined with our strong investment banking expertise, especially our track record in M&A in Japan. As more Japanese firms expand domestically and overseas there is an increasing need for fresh capital and the diversification of shareholder participation across the globe becomes ever more important."

That theme plays out in several deals UBS managed last year, including for example the Idemitsu IPO, which attracted global investors including some, for the first time, from the Middle East. "The rising primary market distribution by issuers and vendors in Japan is a direct reflection of the ownership structure of the Japanese market after several years of net buying by international institutions," Fujikawa concludes.

¦ Top 10 Japanese equity capital market transactions, 2006
DateIssuerDealAmountExchangeBookrunner parent
type($bn)
Jan 23Sumitomo Mitsui Financial GroupFO5.265TokyoDaiwa, Goldman Sachs
Jun 5Mitsubishi UFJ Financial GroupFO4,309Nagoya, Osaka, TokyoCitigroup, Nomura
Nov 6Aozora Bank LtdIPO3,218TokyoCitigroup, Goldman Sachs, Morgan Stanley
Nov 20Toyota Motor CorpFO2,516Fukuoka, NYSE, Nagoya, Osaka, Merrill Lynch,Citigroup, Nomura
Sapporo, Tokyo
Feb 13Mitsui & Co LtdFO1,815Fukuoka, Nagoya, Osaka, Sapporo, TokyoGoldman Sachs, Nomura
Oct 2Sharp CorpCONV1,761Osaka, TokyoNomura
Oct 30Aeon Co LtdFO1,754TokyoDaiwa, Goldman Sachs, Nomura
Sep 21Nomura Real Estate HoldingsIPO1,399TokyoNomura
Jun 12Suzuki Motor CorpCONV1,365TokyoCitigroup
Jul 19Japan Airlines CorpFO1,360Nagoya, Osaka, TokyoGoldman Sachs, Mizuho, UBS
Source: Dealogic
¦ Top 10 Japanese equity capital market
bookrunners, 2006
RankBookrunnerDeal valueNo.% share
($m)
1Nomura21,45611330.3
2Daiwa13,69310119.3
3Citigroup10,5985915.0
4Goldman Sachs8,6881712.3
5Mizuho4,610496.5
6Merrill Lynch2,733133.9
7Morgan Stanley2,59473.7
8UBS2,438103.4
9Mitsubishi UFJ Securities1,328331.9
10Shinko Securities791351.1
Total eligible issuance68,928437100
Source: Dealogic
¦ Top 10 Japanese bank sector equity
capital market bookrunners, 2006
RankBookrunnerDeal valueNo.% share
($m)
1Goldman Sachs5,771634.1
2Citigroup3,689421.8
3Daiwa3,058518.1
4Nomura2,795516.5
5Morgan Stanley1,07316.3
6UBS42212.5
7Mitsubishi UFJ Securities5510.3
8Mizuho5010.3
Total eligible issuance16,91324100
Source: Dealogic
  • 02 Feb 2007

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 330,700.22 1283 8.07%
2 JPMorgan 323,941.31 1398 7.91%
3 Bank of America Merrill Lynch 298,038.11 1018 7.27%
4 Barclays 250,341.26 930 6.11%
5 Goldman Sachs 220,211.32 736 5.37%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 BNP Paribas 46,720.95 183 6.95%
2 JPMorgan 44,545.29 93 6.63%
3 UniCredit 36,248.22 154 5.39%
4 Credit Agricole CIB 33,820.44 161 5.03%
5 SG Corporate & Investment Banking 33,798.79 128 5.03%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 13,792.73 61 8.93%
2 Goldman Sachs 13,469.15 66 8.72%
3 Citi 9,908.67 56 6.42%
4 Morgan Stanley 8,471.86 53 5.49%
5 UBS 8,248.12 34 5.34%