SoftBank telco suffers rare Japan slump on debut after record IPO
SoftBank Corp shares tumbled more than 14pc on debut, as investor appetite for Japan's biggest ever IPO was hurt by a recent service outage at the telecoms operator and worries over its exposure to Chinese telecoms gear maker Huawei.
The poor start for the unit of investment giant SoftBank Group Corp meant that for Japan's mom-and-pop investors concerns about the company and the nation's telecoms market trumped the appeal of the group's charismatic founder Masayoshi Son.
Such a debut is also uncommon in the Japanese IPO market. Of 82 IPOs so far this year, SoftBank Corp's $23.5bn float was only the seventh to open below the offering price. Among recent major IPOs, Japan Display was the only one to flop, suffering a fall in its 2014 debut.
"There was a disruption in its network early this month as well as Huawei's issues. There hasn't been good news involving SoftBank recently," said Tetsuro Ii, chief executive officer at Commons Asset Management.
Shares of SoftBank Corp closed at 1,282 yen, or 14.5pc lower than its IPO price of 1,500 yen. They opened at 1,463 yen.
SoftBank Corp shares were the most heavily traded on the Tokyo Stock Exchange's first section.
SoftBank Group lost 0.9pc and the broader Tokyo market eased 0.4pc.
SoftBank Corp CEO Ken Miyauchi will hold a news conference at 0630 GMT.
The IPO was just shy of the world record $25bn 2014 listing of Chinese e-commerce giant Alibaba Group Holding , a SoftBank Group portfolio company.
SoftBank Group raised 2.65tn yen ($23.5bn) in the IPO. It will retain about 63pc of the newly listed unit should a green shoe option be exercised in full. The IPO is a milestone in the conglomerate's transformation into primarily a global tech investor.
During the IPO period, Japan's third-largest mobile phone network provider by subscriber numbers suffered a rare nationwide service outage, which it said would not affect earnings or dividends.
Adding to investor worries, SoftBank Corp's relationship with Huawei Technologies came under scrutiny as governments around the world moved to shut out the Chinese firm amid worries its gear could facilitate Chinese spying.
SoftBank Corp, which has the most exposure to Huawei among Japanese telecoms firms, plans to replace Huawei-provided 4G network equipment with other suppliers' hardware, two sources said, in a process likely to be time-consuming and expensive.
Even before SoftBank kicked off the IPO process in November, there had been uncertainty over the growth prospects of the Japanese wireless industry after the government said there was scope for the carriers to cut fees by as much as 40pc.
In response Son has said SoftBank will increase automation and reduce headcount at its mobile operations by 40pc over the next two to three years, focusing instead on new growth areas.
The company has already begun shifting staff to ventures like PayPay, a QR code payments app using technology from Indian portfolio company Paytm that recently gave away 10 billion yen in a high-profile marketing campaign.
Other headwinds include Japan's ageing population and Rakuten's entry to the wireless market, said Chris Lane, senior analyst at Sanford C. Bernstein. "All of these things point to earnings pressure on the telco side for all operators, not just SoftBank," he said.
"If you just look at the long-term fundamentals of the telco market, it's hard to make a case that profits will go up unless something more drastic happens," he said.
SoftBank Corp has forecast 3.3pc revenue growth and 9.7pc operating profit growth in the financial year ending in March compared to a year earlier, with profits underpinned by demand for high-speed internet services.
IPOs are popular among Japanese retail investors, many of whom see them as sure profit bets given their tendency to open much higher than offering prices.
In SoftBank Corp's case, an added attraction was its promise of a dividend payout of 85pc, much higher than those of rivals NTT Docomo and KDDI Corp.
"A dividend yield around 5pc is attractive, but the mobile communication industry is expected to face headwinds from next fiscal year," Ii of Commons Asset Management said.
The IPO attracted about twice as many retail orders as the number of shares offered, sources at lead underwriters said last week. A smaller portion of shares offered to overseas intuitional investors was three times oversubscribed.
It remains to be seen whether SoftBank's weak market debut will have a negative impact on Japan's IPO market, where most of companies are small startups and demand can easily overwhelm the small number of shares offered.
Kudan, a startup developing "artificial perception" technology, made its debut on Wednesday on the Tokyo Stock Exchange's Mothers market. Its shares were untraded due to a glut of buy orders.