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Technology

Investor interests crimp Toshiba spinoff's IPO ambitions

Kioxia seen raising just $800m in debut as top shareholder fears dilution

Kioxia, formerly Toshiba Memory, is preparing to go public after being spun off from Japanese industrial group Toshiba. (Photo courtesy of the company)

TOKYO -- Toshiba's former memory business received approval Thursday for an initial public offering expected to raise less than $1 billion, a reflection of conflicting shareholder views that risk depriving the chipmaker of capital to fund future growth.

Kioxia, the world's second-largest maker of NAND flash memory, will debut Oct. 6 on the Tokyo Stock Exchange's first or second section, depending on the terms of the offering. It is expected to list at a valuation of 2.13 trillion yen ($20 billion), which would make it Japan's largest IPO this year.

The listing is a major milestone for the former Toshiba Memory Holdings. The company was spun off from the troubled Toshiba and sold in 2018 to a consortium of American, Japanese and South Korean companies for roughly 2 trillion yen, though Toshiba still owns 40% of the company.

U.S. private-equity firm Bain Capital, Kioxia's top shareholder, and others including Toshiba plan to sell part of their stakes alongside the offering. Toshiba said Thursday it will sell roughly a fifth of its Kioxia shares -- lowering its interest to 32% -- with most of the proceeds to be returned to shareholders.

The main aim of the offering is to raise cash from the market for growth investments. A new factory can cost billions of dollars per building, and Kioxia looks to add more to its Yokkaichi and Kitakami facilities. A vendor who has supplied equipment for Kioxia welcomed the listing as a step toward bringing these plans "closer to reality."

But more than a few market participants are expressing skepticism.

The prospectus submitted by Kioxia on Thursday puts the IPO price at 3,960 yen per share. With about 21.56 million new shares being issued, that would put the total raised at only 85.3 billion yen, or just over $800 million -- a far cry from what is needed to fund its investment plans.

The issue partly stems from conflicting expectations for Kioxia among its key shareholders. "Bain is against issuing new stock because its stake would be diluted," said a source with ties to one of the chipmaker's investors.

A new issuance would mean each share would carry less weight, which can exert downward pressure on the stock price and hurt existing shareholders.

IPOs are designed as a way for companies to raise funds for future growth from the stock market. But Kioxia appears to have pulled its punches out of consideration for its top shareholders.

"Chipmakers need to keep investing to stay competitive, but this raises the hurdle for that," the source said.

Toshiba's interest in memory chips is waning as well. The company has said it will not actively become involved in Kioxia in the future, and plans to reduce its stake in the former unit to minimize exposure to the ebbs and flows of the semiconductor market.

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