Japanese restaurant operator Skylark Co Ltd priced its IPO at the bottom of its marketing range but staffing firm Recruit Holdings Co Ltd bumped up its pricing plans, in a sign that investors have become more selective about Tokyo offerings.
Tokyo has seen a string of weak IPO performances this year after last year's euphoria over Prime Minister Shinzo Abe's growth policies gave way to more measured views, while a sales tax hike in April has also weighed on the economy.
The two listings are being closely watched as a gauge of whether there has been a recovery in investor appetite for Japanese initial public offerings and if so, how substantial that may be.
Skylark, bought by private equity firm Bain Capital in 2011, set the final price for its IPO at 1,200 yen per share, the bottom of its 1,200 yen to 1,450 yen bookbuilding range - pressured in part by a murky outlook for the restaurant sector.
The offering is worth an estimated around 75.3 billion yen($690 million) and values the company at about $2 billion. Most of the funds raised will go to Bain, which has reduced its holding to around 73 percent through the IPO.
The amount of shares Bain offered was cut by around a fifth from initial plans, a further sign that demand was not as strong as it would have liked.
"The fact that Bain Capital decreased the number of shares it was selling, in addition to the challenging environment for the restaurant industry and higher costs from a cheaper yen, made it unpopular," said Tomoichiro Kubota, a senior market analyst at Matsui Securities.
The restaurant industry has been hurting from a weaker yen that has pushed up the costs of ingredients as well as the rising cost of labor in Japan as the population shrinks. It also faces a possible further hike in the sales tax.
"(Bain) would say they've turned the company around and improved numbers. But I would say, they've decided that considering the external environment, they aren't going to be able to sell the company for more money in the future," said Fumio Matsumoto, a fund manager at Dalton Capital Japan.
BETTER TIMES FOR RECRUIT
Matsumoto was, however, somewhat more upbeat about Recruit, which is set to be Tokyo's second biggest listing this year after a $3 billion offering by Japan Display Inc, a supplier for Apple Inc's iPhone.
Recruit said it would market its shares between 2,800 yen and 3,100 yen, up from an indicative price of 2,800 yen. At the top end of that range and including an overallotment portion, Recruit's IPO would be worth as much as $2 billion and the company would have a market value of up to $16 billion.
"For the past two years we've seen a tighter labor market for new graduates and mid-career hires, so there's an appreciation for staffing businesses," Matsumoto said.
If the overallotment portion is included, roughly half of the proceeds may go to Recruit, which will issue new shares and sell treasury stock. The rest of the funds raised will go to existing shareholders.
Skylark's shares are set to start trading on the Tokyo Stock Exchange on Oct. 9. It operates family-style restaurants including Chinese food chain Bamiyan and Gusto, which offers a range of menu options from meat patties to pizza. The company delisted in 2006 through a management buyout to embark on a major restructuring drive.
Recruit plans to announce its final pricing on Oct. 6 and list on Oct. 16.
(Additional reporting by Hirotoshi Sugiyama and Ayai Tomisawa; Editing by Edwina Gibbs)
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