Photo credit: www.investing.com
Kioxia’s IPO Plans Halted Amid Valuation Dispute
TOKYO (Reuters) – Bain Capital faced significant pressure from investors, compelling the firm to reduce its valuation expectations for Kioxia, a prominent memory chipmaker in Japan. This led to the decision to retract its plans for an initial public offering (IPO) originally slated for October, according to two sources familiar with the situation.
Kioxia, previously recognized as Toshiba Memory before being acquired by Bain Capital’s consortium in 2018 for 2 trillion yen (approximately $13.4 billion), will not proceed with the IPO. This development follows reports that global investors wished to value the company at around 800 billion yen, starkly contrasting Bain’s aspiration of 1.5 trillion yen.
The disparity in valuations poses challenges for Bain Capital as it navigates the exit strategy from its six-year investment in Kioxia. Sources attribute this valuation gap to ongoing concerns about the memory chip market’s stability.
Investor discussions occurred in August and September, revealing a previously unreported perspective on the valuations sought. A fund manager associated with an Asian hedge fund remarked, “An IPO this year appears unlikely, considering current NAND market conditions, though a listing might be on the table by the end of the financial year.”
Kioxia has experienced tumultuous times, including its separation from the troubled Toshiba and halted merger discussions with Western Digital due to opposition from SK Hynix. The memory chip sector is currently grappling with weak demand for smartphones and personal computers. Kioxia is also confronting intense competition from South Korean and American manufacturers.
Despite a recent uptick in NAND prices attributed to the AI sector’s growth, pricing increases have started to level off, according to Akira Minamikawa, a senior analyst at Omdia. He noted that the integration of AI technology in consumer electronics might stimulate replacement demand starting next year.
Kioxia specializes in NAND flash memory, a technology it pioneered during the 1980s. In contrast, SK Hynix produces both NAND and DRAM chips and is currently bolstered by robust demand for high bandwidth memory suitable for AI applications.
A Western fund portfolio manager who met with Kioxia expressed reluctance, stating, “I’m hesitant to invest when the NAND market appears to be nearing its peak in the short term.”
Both sources requested anonymity, as the information has not been made public. Bain Capital has refrained from commenting on the situation, while Kioxia did not respond to inquiries.
Market Dynamics and Future Outlook
The Japanese stock market has exhibited volatility, particularly following an unexpected interest rate increase and the recent change in Prime Minister. Despite these fluctuations, the benchmark index has risen 18% year-to-date.
The potential IPO of Kioxia is keenly observed as it serves as a bellwether for private equity firms in Japan, where there is a growing trend for companies to divest non-core assets or transition to private ownership.
Damian Thong, head of Japan research at Macquarie Capital Securities, highlighted the unique challenges faced by private equity in the semiconductor space. He stated, “Typically, private equity does not invest in semiconductor companies because of the significant capital requirements and the difficulty in timing exits, given the cyclical nature of the industry.”
The Japanese government aims to rejuvenate its semiconductor sector and has reserved subsidies amounting to 242.9 billion yen for both Kioxia and Western Digital, intending to enhance production capabilities in Mie and Iwate prefectures. A government official indicated that Kioxia’s geographical significance and its role as a supplier of memory chips for AI products is vital for Japan’s industrial strategy.
“It might be advantageous for Kioxia to consider a lower initial valuation for its IPO, allowing the market to gradually reveal its true potential,” suggested Thong from Macquarie.
($1 = 149.2500 yen)
Source
www.investing.com