Tokyo’s First Listing of the Year Soars in Trading Debut

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Tokyo’s First Listing of the Year Soars in Trading Debut

stock :: 7hrs ago :: source - bloomberg

By Yasutaka Tamura

(Bloomberg) -- Next Generation Technology Group Inc., the first listing on the Tokyo Stock Exchange this year, jumped in its trading debut to boost expectations that sentiment may improve in Japan’s primary market for shares.

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The shares climbed 60% from its offer price to close at ¥3,200, also its intraday high on Wednesday, as investors cheered the listing of the firm that acquires smaller Japanese manufacturers to turn them around. That gave it a market value of ¥27.6 billion ($180 million). Public offerings have slid in recent months in Japan compared with a year earlier after jumping in October, Bloomberg-compiled data show.

“The solid take-off of the company possibly shifts investors’ attention to upcoming IPOs,” said Ikuo Mitsui, a fund manager at Aizawa Securities Co. The company is well-positioned in a growing market and the stock has enough liquidity for institutional investors to trade, resulting in strong demand in the market, he said.

The company is looking for ways to profit from the nagging problems of a rapidly aging population: many of Japan’s manufacturers make first-rate products but they have nobody to inherit their firms.

NGTG acquires companies like those with competitive technologies and high margins, but in need of future leadership, said Eiichi Arai, the Tokyo-based firm’s chief executive officer.

His firm focuses on Japanese manufacturers, many of whom are profitable and have potential to expand in global markets, Arai said in an interview. In the initial public offering, about 29% of shares were sold to investors based in Europe and Asia, with the rest going to buyers in Japan.

Unlike private equity funds, whose usual goal is to sell companies they took over at a profit, NGTG holds on to firms it bought, taking a share of their earnings. It’s acquired 10 companies since 2018, when the company was established.

Those firms include Tiock, which makes colorful LED traffic signs that are ubiquitous in construction sites across Japan, Kinpo Meltech, a sheet metal product processor with more than 90 years of history, and Toyo Mark, whose website says it handles “anything related to plastic parts,” including decoration, printing, molding and processing.

NGTG faces risks too, and on them is the Bank of Japan’s interest rate hikes, Arai said, as the firm raises money through debt financing. But it’s not a big danger because the company borrows at fixed rates, he added. Overnight index swaps indicate that the market has priced in about a 90% chance of a 25 basis point rate increase by September, in what would be the BOJ’s fourth hike since last year when it moved away from radical monetary easing.

Arai, who was previously involved in investment at Mizuho Securities Co. and the government-backed Innovation Network Corp. of Japan, decided to create his company after taking more than a year off to travel around the world and seeing the reputation of Japanese companies abroad.

“I felt manufacturing is what makes Japan respected in the global community,” Arai said. Japan’s push to get companies to take steps to boost shareholder value is also a positive factor, as is the increase in investor activism, he said.

Japan has about 2.45 million small-business owners, about half of whom have yet to identify a successor, according to the Small and Medium Enterprise Agency, a unit under the nation’s economic ministry. The supply of workers is limited by the number of the elderly who can’t work in one of the world’s oldest populations, and that also makes it a challenge to find successors to take over companies with aging management.

Of about 170,000 companies in Japan, 62% lacked a successor last year, up over 1 percentage point from the previous year, according to Tokyo Shoko Research data. That figure has been rising since the survey began in 2019, it said.

Having no successor is a risk when the management is old, because the company may go bankrupt, close down suddenly, or default on debt, Tokyo Shoko Research said.

Having successors also appears to be an effective way of increasing corporate profits. Companies that got new management saw sales growth exceed the industry average from the third year after succession, according to a survey by Teikoku Databank.

(Adds descriptions of some companies that NGTG has acquired)