SoftBank telco flops on market debut after record IPO

TOKYO: SoftBank Corp shares tumbled more than 14 per cent 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 $23.5 billion 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 14.5 per cent 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 0.9 per cent and the broader Tokyo market eased 0.4 per cent.
The IPO was just shy of the world record $25 billion 2014 listing of Chinese e-commerce giant Alibaba Group Holding Ltd , a SoftBank Group portfolio company.
SoftBank Group raised 2.65 trillion yen ($23.5 billion) in the IPO. It will retain about 63 per cent 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 Co Ltd 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 40 per cent.
In response Son has said SoftBank will increase automation and reduce headcount at its mobile operations by 40 per cent 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 3.3 per cent revenue growth and 9.7 per cent 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’s case, an added attraction was its promise of a dividend payout of 85 per cent, much higher than those of rivals NTT Docomo and KDDI Corp. — Reuters