Daily Brief Japan: Kokusai Electric , Intage Holdings, Softbank Group and more

• Kokusai Electric (6525 JP)‘s listing has been approved by the JPX and the stock is expected to start trading on the Prime Market from 25 October.
• At the reported indicative IPO price of JPY 1890/share, Kokusai Electric (6525 JP) will be valued at JPY 435bn (US$2.94bn).
• The stock should be added to the TPX INDEX at the close on 29 November where trackers will need to buy over 14% of the stock issued in the IPO.

• Nippon Active Value Fund PLC (NAVF LN)’s jointly-held shareholding in Intage Holdings (4326 JP) has declined from 11.28% to 9.52% of outstanding shares (disclosed on 20 September).
• NAVF wants to take as much money off the table as possible as NTT (Nippon Telegraph & Telephone) (9432 JP)’s partial offer price represents an all-time high.
• Our revised minimum proration is 53.31%. NAVF’s action suggests that the minimum acceptance condition, which requires a 20% minority acceptance rate, should be satisfied.

We view Softbank Group (SBG) as “Low Risk” on the LARA scale. This is mainly due to the group’s low reported leverage, as measured by LTV. SBG has demonstrated its ability to manage LTV, by periodically monetising large holdings of liquid assets (e.g. Alibaba Group Holding or T-Mobile/Deutsche Telekom shares) via derivatives or non-recourse margin loans. Investors can derive comfort from SBG’s remaining holdings of those liquid assets on the balance sheet. Domestic telco Softbank Corp is the only significant cash generator consolidated into SBG. We see risks stemming from the group’s reliance on its Alibaba stake (which may be volatile), as well as the use of cash from the asset monetisation programme. We are also concerned about the large share repurchase programmes despite SBG’s weak results, as well as the company’s ability to invest.

Our Credit Bias is “Stable”. We believe the worst is over for SBG. The North American and Chinese tech sectors appear to be improving. SBG executed a major asset monetisation exercise in FY 2022-23 to shore up the balance sheet, raising it to a healthy level. LTV is very low, and liquidity is sound. We see little downside going forward, and more upside.

Controversies are “Immaterial”, but the ESG Impact on Credit is “Moderately Negative”. SBG has faced governance concerns, particularly over internal controls and the outsized influence of Chairman, CEO and founder Masayoshi Son. Such issues flare up on occasion, weighing on the credit. One concern is that the chairman could make imprudent investments, lowering the value of SBG’s holdings while driving leverage up.