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Kioxia’s Strong IPO Signals Investor Confidence in Japan’s Chip Sector
SINGAPORE (Reuters) – Kioxia, a prominent player in the memory chip market, experienced a robust market debut on Wednesday, with its shares surging 14%. This performance brought the company’s valuation to over 890 billion yen (approximately $5.80 billion), underscoring significant investor interest and marking the third largest initial public offering (IPO) in Japan this year.
The company successfully raised 120 billion yen, pricing its shares at 1,455 yen, which fell within the middle of its indicative range. Initially, the stock opened at a slightly lower price of 1,440 yen but quickly rebounded, trading at 1,660 yen by 0510 GMT.
Kioxia, previously branded as Toshiba Memory, was acquired by a Bain-led consortium in 2018 for a staggering 2 trillion yen. This sale followed Toshiba’s crisis linked to massive cost overruns within its nuclear division, which necessitated the divestiture of its memory chip business.
Jon Withaar, who leads an Asia-focused special situations hedge fund at Pictet Asset Management, remarked on the market’s positive reaction, noting that “the valuation discount being offered” seems to have resonated well with investors. Withhaar also indicated the absence of significant selling pressure, which he interpreted as a favorable sign for future private equity exits in Japan, contingent on maintaining reasonable valuations.
Kioxia’s IPO contributes to a robust year for initial public offerings in Japan, which also witnessed significant contributions from entities like Tokyo Metro and Rigaku, a testing tool manufacturer backed by the Carlyle Group. Data from LSEG reveals that IPOs in Japan have collectively raised over $6 billion in 2024, marking the country’s best year for such activities since 2021, despite the overall count of IPOs being at its lowest in a decade.
The Backstory of Kioxia’s IPO Journey
The path to Kioxia’s IPO has been fraught with challenges. The name ‘Kioxia’ is derived from the Japanese word “kioku,” meaning “memory,” and the Greek word “axia,” denoting “value.” This name reflects the company’s aspirations within the highly competitive semiconductor landscape.
The Bain consortium’s acquisition of Kioxia was viewed as a landmark example of private equity’s growing influence in Japan’s corporate arena. However, post-sale, uncertainties persisted, leading Bain to postpone its IPO plans two years later due to fluctuations in the global chip sector, primarily influenced by escalating Sino-U.S. tensions.
Additionally, a proposed merger between Kioxia and its partner, Western Digital, faced setbacks, largely due to concerns raised by Kioxia’s investor, South Korean firm SK Hynix. Reports indicated that Bain later abandoned its IPO intentions in October after investors urged a significant reduction in the initially proposed 1.5 trillion yen valuation.
Following the IPO, Bain Capital’s stake in Kioxia is expected to decrease to 50.7%, including the overallotment, down from 56.2%. The decision to sell a limited portion of shares stems from the chipmaker’s current market valuation, according to sources familiar with Bain’s strategy.
While entering the public market offers Kioxia enhanced opportunities for capital acquisition within a capital-intensive sector, it also subjects the company to greater scrutiny regarding its financial performance. For the quarter ending September 30, Kioxia reported a net income increase to 106 billion yen, up from 69.8 billion yen in the preceding quarter, attributed to an improving balance between supply and demand.
Nonetheless, some analysts express caution regarding Kioxia’s future in the competitive memory chip marketplace. Richard Kaye, a portfolio manager at Comgest based in Tokyo, highlighted that the anticipated valuation range of 4-5 times price-to-sales might reflect a rare investment opportunity in Japan’s semiconductor sector, yet could be challenging to support otherwise. “I’m not terribly excited about Kioxia,” Kaye concluded.
($1 = 153.4100 yen)
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