SoftBank Corp. President and CEO Ken Miyauchi poses before ringing the bell during a ceremony for the company's listing at the Tokyo Stock Exchange on December 19, 2018. - Shares in Japanese telecoms giant SoftBank's mobile unit traded well below its IPO price on December 19 in a disappointing debut on the Tokyo stock market despite raising a record amount. (Photo by Kazuhiro NOGI / AFP)KAZUHIRO NOGI/AFP/Getty Images
Ken Miyauchi, chief executive of SoftBank’s mobile unit, at the company’s listing ceremony at the Tokyo Stock Exchange © AFP

Wednesday witnessed a moment of IPO perfection. Tons of retail investor buzz from the outset, an oversubscribed order book, brokers high-fiving a sales job well done and, as the market opened for the stock’s debut, demand so scorching that the bid price soared threefold without a share being traded.

A truly wonderful debut then, for Kudan, the small-cap “artificial perception” technology play making its entrance on to Tokyo’s Mothers market on Wednesday.

A stunningly far cry, though, from the first trading day of SoftBank Corp which had fallen 14.5 per cent by the close, shedding roughly $9bn in market value from its pre-trading IPO market cap.

It’s not hard to explain this. The pricing put SoftBank at a premium to its larger rival, NTT DoCoMo, and the smart money has always maintained this was overpriced and the whole project always looked like a characteristically aggressive play by SoftBank founder Masayoshi Son.

Records were broken by the scale of the listing and convention was broken by his decision to try to sell the shares with a single price rather than the usual range.

Add into the mix a weak market, a threatened price war, the Huawei furore and SoftBank’s recent network outage and you can see why a certain type of retail investor who bought in on a simple narrative (Famous brand! Big dividend! Passive money inflows!) would then sell on stuff they have seen leading the evening news over the past three weeks.

There was an inherent fragility in this IPO that was always going to be tested; the market just chose to do so (unusually for Tokyo) from the first second of trading.

There is a strong temptation, meanwhile, to predict that this episode will befoul Japan’s IPO market in coming months and frustrate government efforts to convince Japan that domestic equities are the ideal asset class for an ageing population with its cash mouldering worthlessly in the bank.

Surely the 10 other companies with IPOs scheduled in December, plus the 90-100 listings that Nomura analysts are forecasting for 2019, must now be quaking in fear of under-subscription?

There are plenty who suspect so. The other outstanding IPO of 2018 — the June listing of “unicorn” online flea market Mercari — surged handsomely on its market debut, but has since fallen, to the misery of day traders, more than 50 per cent from those heights.

More broadly, a portfolio comprising Japanese stocks that listed this year would be below water (though less so than the Topix).

Mr Son pitched more than 80 per cent of his SoftBank mobile sale at domestic retail investors because they pretty much always buy new issues despite track record; surely now they will stop falling for this type of schtick?

Perhaps. But perhaps not. Between January and November, calculates Nomura, individual Japanese were net sellers of cash equities and futures to a combined tune of ¥247bn, but bought ¥648bn in IPOs, primary and secondary offerings between January and September — they are not, then, natural believers in the market (despite the supportive presence of the BoJ buying ETFs) but seem able to suspend that disbelief for any IPO that comes along.

Analysts of the Japanese IPO market also like to point to various trends to back the theory of a qualitative shift in what the market will or will not swallow when it comes to new issues.

The number of IPOs in Japan has risen from 19 in 2009 to 54 in 2013 and 91 this year. But when the two mega-IPOs of the past two years (Japan Post in 2015 and SoftBank Corp yesterday) are stripped out, the combined value of the money IPOs raise has been shifting downwards since 2014.

However bruising and disastrous Mr Son’s IPO ultimately proves for retail investors, it should not be stripped out of any calculations.

The value of money raised by Japanese IPOs in 2018 has now exceeded ¥3tn — an appetite that reflects many entirely new investors opening their first trading accounts to buy SoftBank even as the broad Topix is in decline.

There is an argument that, rather than souring the market, Mr Son has shown that, at least in the permanently anomalous arena of IPOs sold to domestic retail, the boundaries of risk tolerance lie further out than most had guessed.

That is possibly why retail investors were on Wednesday bidding for the mysterious business model of Kudan like it was water in the desert even as they were knocking six bells out of SoftBank.

The extent to which Wednesday’s trading has destroyed Japan’s fascination with IPOs will be expressed over the next few months in pulled IPOs or cautious price ranges. That may yet happen, but to think of it as a certainty is premature.

leo.lewis@ft.com

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