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Brokerages scramble on tepid investor response over SoftBank IPO

Share subscriptions are alarmingly short of those for Mercari and Japan Post

SoftBank Group Chairman and CEO Masayoshi Son.   © Reuters

TOKYO -- Mobile carrier SoftBank Corp.'s initial public offering set for Dec. 19 is oversubscribed by less than double -- a level well below blockbuster Japanese stock debuts in recent memory that has left domestic brokerages reeling.

Investors' apparent lack of appetite stems from last week's massive service outage, as well as the drama surrounding Huawei Technologies, the Chinese telecommunications supplier with which SoftBank had done business. Making things worse, the parade of bad news arrived shortly before Friday's subscription deadline.

With parent company SoftBank Group expecting to raise up to 2.6 trillion yen ($23 billion) on the Tokyo Stock Exchange, question marks surround what could be Japan's biggest initial public offering in history.

One IPO manager at a major Japanese brokerage had to use every trick in the book to draw buyers for SoftBank. Unable to convince enough existing clients to subscribe, younger subordinates were enlisted to drum up new customers. They went as far as telephoning individuals with dormant accounts.

"We somehow managed to sell out," said the manager.

The recent weeks have not been kind to SoftBank or the brokerages. The carrier sustained four and a half hours of nationwide service interruptions on Dec. 6, during the all-important book-building period that week.

"There were first-time IPO investors who were wondering if purchasing such a company's shares is a good idea," said a Japanese asset manager.

Then there is Huawei, whose equipment are subject to bans in the U.S., Australia and New Zealand due to security concerns. The Japanese government recently decided to bar state ministries from buying from the supplier.

"If Chinese base station equipment will be unusable in the future, that would change the outlook on [SoftBank's] capital expenditures," said a 33-year-old living in Japan's Kanagawa Prefecture. "I've held doubts about the validity of the 1,500 yen offer price." He eventually cancelled an order for 5,000 shares.

SoftBank has distanced itself from Huawei, deciding to replace all the Chinese company's equipment in its 4G infrastructure.

Adding to SoftBank's woes is a mix-up caused by SBI Securities, one of its lead underwriters. SBI held a lottery Monday to distribute SoftBank shares, only to notify some investors two days later that they were entitled to more shares. For example, an investor who subscribed for 1,000 shares would initially be given 100 shares in the lottery, then see the number rise to 300.

Twitter was abuzz with SBI clients dumbstruck by the news, with some saying they are unable to purchase the extra shares. Other posters speculated that the newly discovered shares actually came from cancelled orders. SBI maintains the correction was due to an error, and that it did not increase the number of shares investors are entitled to buy or allocate shares to those who initially were not chosen.

SBI said Friday it has finished selling its portion of SoftBank shares, the same day lead underwriters revealed the carrier was less than two times oversubscribed. That compares unfavorably to Mercari, the flea-market app oversubscribed 45 times for its June float, according to Tokyo-based data provider Capital Eye. Staffing group Recruit Holdings was roughly eight times oversubscribed, while Japan Post Holdings' multiple was around three.

The general caution over maiden stocks has also hurt SoftBank's demand among investors. The IPO index, which tracks stocks that have listed within the past year, has plunged about 20% since the Nikkei Stock Average touched a year-to-date high in early October. These conditions are not likely to have energized retail investors for the megafloat.

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