Biggest winner from Japan Post IPO: Abenomics
It's been a good month for Abenomics. Just two weeks after the Trans-Pacific Partnership deal breathed new life into Prime Minister Shinzo Abe's deflation-beating economic policies, a second breakthrough has arrived in the form of Japan Post Group's landmark initial public offering (IPO).
The three-way listing of state-owned postal giant Japan Post and its financial subsidiaries-Japan Post Bank and Japan Post Insurance-on November 4 is expected to raise a combined $11.5 billion, making it Japan's biggest IPO in over two decades and the world's largest offering this year.
"The IPO is a big feather in the hat for Abe and Abenomics," Gavin Parry, managing director at Parry International Trading, told CNBC on Tuesday, a day after the two subsidiaries priced their IPO offerings at the top of the range , indicating strong interest from retail investors. Parent firm Japan Post is due out with pricing next week.
Because the IPO is targeting individual investors, consumer spending-essential to Abenomics-is expected to get a boost if the overall public profits from shares.
"It [the IPO] is trying to get increased share ownership in the domestic society, getting money out of the mattresses and putting it to work. Japan Post is a cornerstone in Japan, it's a well-known entity, part of everyday life, so for the domestic Japanese, it should become a core long-term holding in any stable portfolio," explained Parry.
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The pricing of the IPOs should ensure interest, according to Parry. "Even though pricing is at the top end, it's still attractive."
Using the example of Japan Post Bank, he notes it is around 0.4 times book value, compared to 0.7 times for Japan's three largest banks.
Moreover, it's offering a 3-3.5 percent dividend yield based on a 50 percent payout ratio, he added. That's especially attractive in Japan, a country where the average dividend yield for the benchmark Nikkei 225 index (Nihon Kenzai Shinbun: .N225) is just 1.64 percent, according to Reuters data.
Aside from banking, postal distribution, and insurance, Japan Post's operations also include international logistics and real-estate.
The timing couldn't be better for Abe whose approval ratings have tumbled in recent months on backlash over his revision to Japan's pacifist constitution, while stalled progress on structural reforms, the final step of Abenomics' three-pronged program, has left several investors disillusioned in recent years.
While the Trans-Pacific Partnership agreement marked a milestone for deregulation for the closed-off agriculture sector, a long-awaited reform, results still hinge on the trade deal's pending approval.
"This IPO is a big win for economics; it should help boost sentiment in relation to more reforms. We've been looking into the cash equity markets to price in more reform premiums as well," said Parry.
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But others warn that the IPO may not be the best catalyst for renewed confidence in Abenomics.
"In theory, yes the IPO is a complimentary aspect of the broader economic plan from a stock market participation effect and a pension effect, but there are other more pressing factors for Abenomics," warned Vishnu Varathan, senior economist at Mizuho Bank.
Stalled progress on improving wage growth and labor market reforms, two core structural reforms, are bigger impediments to Abenomics than the IPO is a boost, he explained.
"They have still got the basic problems they have had for many years, which are: demographic issues, a very low or negative growth in the population; a lot of debt; and a little bit of deflation - they have not managed to get inflation up in any sense and that is likely to continue," agreed Franklin Allen, economics professor at the Wharton School of the University of Pennsylvania, in a recent note.
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