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Japan Airlines prices IPO at top price of 3,790 yen

IPO at 663 billion yen is biggest since Facebook was priced a top range

Image Credit: AFP
Passengers queueing up to check in at the Japan Airlines (JAL) counter at Haneda International Airport in Tokyo.
Gulf News

Tokyo: Japan Airlines Co’s 663 billion yen (Dh 31 billion or $8.5 billion) initial public offering, the biggest since Facebook Inc, was priced at the top of a range.

The shares were priced at 3,790 yen each, according to a regulatory filing on Monday. The offering was marketed at 3,500 yen to 3,790 yen. JAL’s state-backed parent is selling 175 million shares.

JAL, based in Tokyo, will begin trading on the city’s stock exchange September 19, capping a turnaround from bankruptcy that included paring more than a third of workers, scrapping routes and retiring older planes. The now profitable company is being priced at about five times forecast earnings, compared with about 13 times for All Nippon Airways Co, Japan’s largest carrier.

“This shows the offer has been successful,” said Mitsushige Akino, who oversees the equivalent of $600 million in assets in Tokyo at Ichiyoshi Investment Management Co. “Even while the overall market is doing badly, it’s a chance for investors to make some short-term profits.”

The Topix index has dropped about 16 per cent from this year’s peak on March 27 because of concern Europe’s debt crisis is deepening and that growth is slowing in China and the US. Japan’s economy expanded an annualised 0.7 per cent in the second quarter, half the pace the government initially estimated, the Cabinet Office said in Tokyo on Monday.

International investors

The carrier drew orders for all the stock being sold, two people with knowledge of the transaction said last week. International investors, who were allocated about 25 per cent of the IPO shares, put in orders for about twice that amount, said one person, who declined to be identified because the information is private. The other 75 per cent, set to be sold to Japanese institutional and retail investors, was also covered, the person said.

Individual Investors

“Pricing at the top end indicates high demand from individual investors,” Yoshinori Ogawa, a stock-market analyst at Faith Inc said by telephone. “’It’s also Japan’s most-watched IPO of the year, so brokers probably wanted to settle at the upper end to avoid any concern it isn’t popular.”

JAL will surpass ANA as Japan’s biggest carrier by market value following the sale and will be the fourth-largest worldwide behind Latam Airlines Group SA, Singapore Airlines Ltd and Air China Ltd.

ANA rose 2.3 per cent to 180 yen at close of trading in Tokyo. The carrier, which completed a share sale last month, has fallen 16 per cent this year.

Two-year turnaround

JAL is returning to the stock market after a two-year turnaround in bankruptcy protection that transformed it into the world’s most profitable airline. The government drafted in Kazuo Inamori, the founder of electronics company Kyocera Corp, to oversee the restructuring.

The plan was supported by a 350 billion-yen investment from state-backed Enterprise Initiative Turnaround Corp of Japan. The fund, which can only invest in companies for three years, is selling its 97 per cent stake in the IPO. It will get back more than it invested, Inamori, who is now JAL’s chairman emeritus, has said.

Prior to the JAL sale, companies had raised more than 130 billion yen in 23 priced IPOs in Japan this year. That’s little changed from a year earlier, according to data compiled by Bloomberg. Activia Properties Inc raised 94.3 billion yen in a sale in May. Facebook raised $16 billion in its New York IPO in May. The shares have since fallen about 50 per cent.

Air China

JAL posted a record profit of 187 billion yen in the year ended March, more than twice that of Beijing-based Air China, the most profitable listed carrier, according to data compiled by Bloomberg. The airline is predicting a profit of 130 billion yen this fiscal year, compared with 40 billion yen at ANA.

JAL has benefited from tax credits against past writedowns, which have prompted complaints from opposition lawmakers.

ANA and JAL are also both facing new competition in Japan from three discount carriers that have started flights this year. JAL owns a stake in one, Jetstar Japan Co, while the other two are part-owned by Tokyo-based ANA.

The three newcomers all filled about 90 per cent of domestic seats during last month’s peak holiday season. JAL and ANA both had load factors of less than 80 per cent for flights within the country, and both reported declines from a year earlier.