In today’s briefing:
- Rakuten Bank (5838 JP) Overnight Offering at a Fat Discount
- Toyota To Sell Harmonic Drive (6324 JP) Shares in Overseas Offering
- Rakuten Bank Placement – Was Expected at Some Point, Current Timing Seems Opportunistic
- Rakuten Bank (5838 JP) Placement: Index Inclusion Will Absorb Some Stock
- Harmonic Drive Placement – Cleanup Share Sale Will Remove the Overhang
- Toho Takeout of Rakutenchi – Buying a Real Estate Portfolio at a 50% Premium but 0.7x NAV.
- Tokyo Rakutenchi (8842 JP): Toho’s Tender Offer at JPY6,720
- Japan Airlines (9201 JP, BUY, TP: JPY3150): Slow, Steady, Stable Recovery
- Denso Corp Placement – Not Quite Shaping up for a Win Yet
Rakuten Bank (5838 JP) Overnight Offering at a Fat Discount
- After the close today, Rakuten Group (4755 JP) announced the sale of 25.5mm shares of Rakuten Bank (5838 JP), right as the IPO lockup was reaching its expiry. Expected.
- Pricing is 6-7 Dec (pre-Tokyo open 7 Dec), delivery 11 Dec 2023. Indicative price range is 8.5-12.5% discount for a deal of US$425mm or so.
- In an interesting technical detail, this will take Rakuten below 50%. There is some near-term index demand, some in April, some next October. Rheos could be more overhang.
Toyota To Sell Harmonic Drive (6324 JP) Shares in Overseas Offering
- Today, Toyota Motor (7203 JP) announced it would sell 4.379mm shares (4.55%) of Harmonic Drive Systems (6324 JP) in an overseas placement.
- This is not so big as it is emblematic, adding to the recent news on Toyota unwinds.
- Harmonic Drive is heavily held by foreign institutions. This is a foreigners-only deal. But it will need to be absorbed by that group too.
Rakuten Bank Placement – Was Expected at Some Point, Current Timing Seems Opportunistic
- Rakuten Group (4755 JP) aims to raise US$430m via selling around 14.6% of Rakuten Bank (5838 JP).
- RB is the largest internet bank in Japan, by number of accounts. As of Sep 23, it had 14.3m deposit accounts with a total deposit base of JPY9.5tn.
- In this note, we will talk about the deal dynamics and updates since our last note.
Rakuten Bank (5838 JP) Placement: Index Inclusion Will Absorb Some Stock
- Rakuten Group (4755 JP) is looking to sell 25.5m shares of Rakuten Bank (5838 JP) via a secondary offering at a discount of between 8.7%-12.3%.
- The offering will raise a maximum of US$433m and Rakuten Group (4755 JP) will use the funds to reduce its interest-bearing debt by the early repayment of its bonds.
- There will be limited passive buying at the time of settlement of the stock but there is an index inclusion coming up that will result in passives buying.
Harmonic Drive Placement – Cleanup Share Sale Will Remove the Overhang
- Toyota Motor (7203 JP) is looking to raise US$116m from selling its entire stake in Harmonic Drive Systems (6324 JP).
- Toyota Motors has indicated over the past one-two weeks that it will be looking to sell/trim its stakes in various entities as part of its exit from its multiple cross-holdings.
- While the deal would be a relatively large one to digest at 10 days of ADV, Toyota Motors will be selling its entire stake, clearing the overhang.
Toho Takeout of Rakutenchi – Buying a Real Estate Portfolio at a 50% Premium but 0.7x NAV.
- Yesterday, Tokyo Rakutenchi (8842 JP)‘s #1 shareholder Toho Co Ltd (9602 JP) agreed to buy out the rest of Tokyo Rakutenchi from its #2 and #3 shareholders and minorities.
- The Takeover Price is a 51% premium. Which is nice. But the asset is a real estate portfolio, and it was sold as a company, not a real estate portfolio.
- The revaluation surplus to market value for the real estate assets is more than net equity, so Takeover PBR >1.0, but Price/NAV of the takeover is 0.7x, without synergies included.
Tokyo Rakutenchi (8842 JP): Toho’s Tender Offer at JPY6,720
- Tokyo Rakutenchi (8842 JP) has recommended Toho Co Ltd (9602 JP)’s tender offer of JPY6,720 per share, a 51.5% premium to the undisturbed (6 December).
- The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the tender offer is set at a 24.29% ownership ratio.
- Based on the irrevocables, the minimum acceptance condition requires a 30.2% minority acceptance rate. This acceptance rate is doable as the offer represents a ten-year high.
Japan Airlines (9201 JP, BUY, TP: JPY3150): Slow, Steady, Stable Recovery
- Japan Airlines (9201 JP) (JAL) is making a positive recovery on strong domestic and international demand
- Weak JPY is a big headwind and so is its 40% fuel hedge cover locked in at higher than-market price. These factors should reverse and unwind next year
- Target price JPY3,150 based on 1.65x FY24 P/BV – one standard deviation above its mean. Borderline attractive with 12% UPSIDE, and 2.3% dividend yield
Denso Corp Placement – Not Quite Shaping up for a Win Yet
- On 28th Nov 2023, Toyota (7203 JP) announced that it would sell around 9.4% of Denso (6902 JP) in order to reduce its cross-shareholding.
- Since then the shares haven’t corrected by much, as compared to prior large secondary deals.
- We have covered the deal background in our earlier notes. In this note, we talk about deal dynamics, as compared to prior deals.
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