TOKYO -- SoftBank Group's mobile unit on Friday set an indicative price of 1,500 yen per share ahead of what would be Japan largest-ever initial public offering in December.
At that price, SoftBank Group, led by Chairman and CEO Masayoshi Son, would reap 2.64 trillion yen ($23 billion) from the sale of slightly more than a third of its stake in SoftBank Corp.
The unusual announcement of a fixed price, rather than a range, suggests Japan's third-largest mobile carrier is confident it can obtain its desired IPO price, which it first announced on Nov. 12.
That would value SoftBank at 7.18 trillion yen ($62 billion) when it lists its shares on the Tokyo Stock Exchange on Dec. 19, compared with larger rival KDDI's 6.75 trillion yen market capitalization as of Friday. Despite lackluster earnings growth and a maturing telecommunications market, SoftBank has managed to attract individual investors in Japan through its high dividend yield and strong brand, analysts say.
The company's "cash-flow creation will enable both shareholder returns and investment in growth," SoftBank said in a news release explaining its aggressive price target, adding that it took into account demand from domestic retail investors, who are expected to buy most of the shares floated.
Some analysts warn, however, that an overly optimistic valuation could see the stock fall after the IPO, given cooling market sentiment. In a sign of weak overseas demand, about nine in 10 shares are being offered to domestic investors.
While official book-building has yet to begin, underwriters Nomura Securities, Daiwa Securities and SMBC Nikko Securities and others have been touting the SoftBank IPO to retail investors through TV commercials and sales calls. They hope to persuade Japanese households to put some of their wealth -- estimated at more than 1,800 trillion yen in cash, stocks and other financial assets -- into SoftBank shares.
"Commercials and other marketing efforts are important for sales managers pitching an IPO of this scale to retail investors," said Kazumi Tanaka, an IPO analyst at Tokyo-based DZH Financial Research. "SoftBank is already a household name."
SoftBank Group's shares, which are already listed in Tokyo, hit a one-month high on Friday on growing hopes from investors for a huge payday from the mobile unit's IPO. The parent company will receive up to 2.64 trillion yen from the sale of around 37% of its stake in SoftBank Corp., including an overallotment of shares if demand is strong.
A successful flotation will boost Son's effort to transform the parent company into a global technology investment powerhouse.
An offering price of 1,500 yen gives SoftBank Corp. an enterprise value of more than eight times earnings before interest, taxes, depreciation and amortization, much higher than the four to five times of its larger rivals NTT Docomo and KDDI, according to Sanford C. Bernstein analyst Chris Lane.
The high valuation comes despite tepid earnings. SoftBank had a net profit of 412 billion yen for the year ended March, down 6.5% on the year. The company faces challenges, including DoCoMo's recent move to slash subscription fees and Japanese e-commerce leader Rakuten's push into the telecom sector.
Despite these potential speed bumps, the shares' high dividend payout ratio of 85% makes them attractive to retail investors. SoftBank is pursuing a "beyond carrier" strategy, under which it partners with technology companies that the parent company has invested in through its $100 billion Vision Fund. These partners include U.S. coworking space company WeWork and Indian fintech company PayTm.