Rich reward: A visitor looks at an electronic stock board at the Tokyo Stock Exchange. The listing of Kokusai Electric Corp today wil raise 108 billion yen for KKR. — AP
Tokyo: Kokusai Electric Corp is set to go public on the Tokyo Stock Exchange today in Japan’s biggest initial public offering (IPO) since 2018, marking a success for KKR & Co’s buyout of the semiconductor-equipment company.
The American private equity firm acquired the business from Hitachi Kokusai Electric Inc through a tender offer in 2018, an early experiment in whether foreign buyout shops could successfully acquire pieces of unwieldy Japanese conglomerates and improve their performance.
It’s overcome challenges including a weakening yen and geopolitical conflicts over chips and will debut Kokusai at an offering price of 1,840 yen per share.
KKR will sell about 58.8 million shares, raising 108 billion yen.
This values Kokusai at around 424 billion yen, compared with a purchase price of 257.1 billion yen.
Yet KKR’s return is likely higher than the simple calculation would indicate. It already sold off one division of the original business and borrowed a substantial portion of the purchase price, meaning the equity investment was smaller.
One indication of the original investment may be the strike price for options granted as incentives to management, which is 167 yen, according to the IPO documents. That would make KKR’s return on the deal more than 10 times. More than 100 employees received options in the transaction.
The debut is taking place just as the US government and allies such as Japan are tightening controls over the export of chip technology to China, the biggest market in the world.
But Kokusai is well placed in the market for what is known as film deposition equipment, along with dominant player Tokyo Electron Ltd.
“All semiconductor companies need a second supplier so Kokusai Electric’s role is guaranteed,” said Richard Kaye, portfolio manager at Comgest Asset Management.
“Kokusai Electric should benefit from the growth of semiconductor capital investment.”
Buyout firms like KKR and Bain Capital have long scouted for deals in Japan, where conglomerates often held onto underperforming units even if they didn’t have the management expertise or capacity to improve their profitability.
Bain led a buyout of Toshiba Corp’s memory chip unit, now known as Kioxia Holdings Corp, and is trying to negotiate a merger of the company with Western Digital Corp.
Kokusai’s offering will be the biggest debut since SoftBank Corp’s 2.4 trillion yen listing in December 2018. The nation’s IPO market had since slumped, with only US$2.4bil of capital raised in 2022, the smallest amount in 10 years, according to the data compiled by Bloomberg.
The picture has turned brighter again, with the amount raised in Tokyo this year jumping almost three times from a year earlier.
“The company plays a significant role in the chip-making process,” said Kazuyoshi Saito, senior analyst at Iwai Cosmo Securities Co. Kokusai provides its products to Intel Corp, according to the data compiled by Bloomberg.
That said, chip export controls cast a shadow over the growth path. High exposure to China and the memory sector is “a distinct negative”, according to Mio Kato, analyst at LightStream Research.
The Japanese government joined export restrictions in July, adding 23 types of semiconductor production equipment to export-control categories. — Bloomberg
