Bankers gear up for Japan share sale revival to extend into 2024

TOKYO – Equity capital market bankers in Japan are bracing themselves for another busy year as stocks extend a rally that has drawn buyers from local individual investors to global funds and transformed the market into one of Asia’s most active in 2023.

The amount raised from initial share sales and additional offerings in Japan has totalled almost US$31 billion (S$41.2 billion) since the start of 2023, more than three times the tally for all of 2022.

That surpassed the combined amount for other developed Asian economies including Australia, Hong Kong, Singapore and New Zealand, the data shows.

The upswing in activity reflects expectations of a new era for Japan’s markets as the country shows signs of stamping out decades of deflation while the bourse implements measures to boost governance that drove stocks to 33-year highs and attracted more listings.

That has led to a turnaround after 2022 marked the worst year for share sales in 2½ decades.

“The Japan market has benefited from tailwinds such as accommodative monetary policy, low inflation, a weak yen and corporate governance reforms,” said Mr Akshay Sawhne, co-head of Apac equity capital markets at Bank of America in Hong Kong. “We would expect issuance to remain strong in 2024.”

The bulk of the activity in 2023 came from companies offering new shares and investors selling their existing holdings, as companies and shareholders sought to take advantage of ballooning equity prices in the world’s third-largest economy.

Such offerings reached US$26 billion, almost four times more than 2022, Bloomberg data shows. 

Additional share sales usually precede a pick-up in activity in initial public offerings, given that they are quicker to execute.

In March, Japan Post Holdings executed an US$8.6 billion share sale in its banking unit – the world’s biggest such trade in 2023.

“There is a lot of excitement towards Japan, and that will continue into next year,” said Ms Peihao Huang, co-head for Asia ex-Japan equity capital markets at JPMorgan Chase & Co in Hong Kong.

Large sell-downs by shareholders have seen “strong investor demand, both domestically and internationally”, she said.

The benchmark Topix index is up 23 per cent for the year, set for the best yearly performance since 2013, according to data compiled by Bloomberg.

It still has scope for another double-digit gain by the end of 2024, according to the median estimate of analysts compiled by Bloomberg, even as the market faces short-term risks. 

Factors including a stronger yen, weak consumer spending and competition from overseas share markets may take some of the shine off Japanese equities in the coming months. 

In addition, a drop in a gauge that tracks start-ups in Japan may deter some potential newcomers from selling shares, according to Mr Hayato Takei, head of the equity syndication department at Mizuho Securities Co.

The Tokyo Stock Exchange Growth Market 250 Index is down 5.8 per cent in 2023, heading for a third yearly decline. 

A sustained boost to offerings may still come from the country’s bourse.

The Tokyo Stock Exchange has been calling on listed companies to improve capital efficiency and reduce holdings in one another’s stock.

Last week, auto parts manufacturer Denso, of which the largest shareholder is Toyota Motor, offloaded its entire stake in three other fellow Toyota affiliates. 

More such unwinding of cross-shareholdings are seen in the first six months of 2024, according to Mr Tsunenori Hanakura, general manager of the equity capital markets division at Mitsubishi UFJ Morgan Stanley Securities.

Such offerings are expected to increase “if stocks rise to another level and gain momentum to test record highs”, he said.

Another segment expected to remain busy is the sale of debt linked to equity, such as convertible and exchangeable bonds.

The amount raised through such notes by Japanese firms climbed to about US$3.7 billion in 2023, Bloomberg data shows. That is more than seven times the proceeds in 2022. BLOOMBERG