Business

With massive IPO of Japan Post, the nation seeks to shake decades of torpor

by Kathleen Chu, Komaki Ito and Shigeru Sato

Bloomberg

As Japan prepares this week for the biggest initial public offering in the world since Alibaba Group Holding Ltd. in September 2014, the government hopes that the ¥1.5 trillion privatization of the postal service will help revive the country from its 20-year slump.

Prime Minister Shinzo Abe intends for the IPO of Japan Post Holdings Co. and its banking and insurance units Wednesday to unleash the country’s enormous pool of household savings and spark investment by individual Japanese, to whom almost 80 percent of the shares are being sold. The privatization of the venerable post office — part of a wave that includes Britain’s Royal Mail in 2013, Italy’s Poste Italiane last month and China’s postal savings bank next year — is also likely to shake up Japan’s banking industry and transform the 144-year-old postal service to cope with the digital age.

“The meaning of the Japan Post privatization is linked to the real revival of Japan after lost decades,” said Hideki Fujii, an economics professor at Kyoto University who has studied the sale. “Japan is under even more pressure than it was 10 years ago to increase its international competitive edge in every industry.”

Abe is urging Japanese people to return to the stock market after decades of deflation gave them an incentive to hoard cash, and the government’s offer of the large majority of Japan Post shares to individuals is part of that effort. Abe is also counting on the postal savings bank to shift more of its ¥207 trillion of deposits into riskier assets than low-yielding government bonds.

Early signs are encouraging. Demand for the three offerings exceeded the supply of shares being sold, prompting the government to price the stocks at the top end of marketed ranges before their listings Wednesday. Still, they were priced cheap: The banking unit was valued at just 0.47 times what it would be worth if its assets were sold off, less than the 0.74 average at Japan’s three biggest lenders.

Japan Post’s banking arm is already starting to diversify its portfolio away from government notes as the Bank of Japan tries to spark inflation.

“Waking Japan up to the risk of not taking risks has been a very good thing,” said Dan Chamby, who helps manage $90 billion at BlackRock Inc. “You have lost an entire generation of equity investors. I believe this is part of the policy thrust of the prime minister, which is to create long-term investors in Japan.”

Japanese have ¥1.717 quadrillion in financial assets — roughly equivalent to the entire economic output of the eurozone — with more than half sitting in cash and deposits, BOJ data show.

Despite a handful of large privatizations in Japan since the 1980s, only 11 percent of households’ assets are in shares, compared with 34 percent in the U.S. and 18 percent in the eurozone, according to the BOJ.

Through the postal IPO — Japan’s largest state asset sale since 1987 — Abe is seeking to realize what two of his predecessors tried to achieve. Junichiro Koizumi first drove the sale of Japan Post a decade ago, while Yasuhiro Nakasone in the 1980s had pushed the idea to sell public assets to citizens to foster a culture of shareholding and make the entities more efficient.

Koizumi had wanted to reduce wasteful government spending. In 2005, he put the issue to voters in a snap election, which he won by a landslide, and he expelled hard-liners from his Liberal Democratic Party for not supporting it. The privatization divided the Diet for years — opponents claimed it would result in job losses and an end to some services — until politicians agreed that some of the proceeds could be used to fund rebuilding of areas devastated by the 2011 earthquake and tsunami. By law, Japan Post must provide access to its services nationwide in even the remotest areas.

The sale of Japan Post is no longer so contentious because politicians and the electorate now recognize the need for economic reform, said Fujii of Kyoto University.

“The difference between now and the time when the privatization was first discussed clearly is changes to the environment around Japan’s economy,” said Naoko Nemoto, a Tokyo-based research fellow at Standard & Poor’s. “With the population shrinking and the economy slowing, people realize the seriousness of the situation Japan is in.”

Abe has been pushing for companies to increase returns for shareholders by improving corporate governance and profitability. To some, he resembles former Prime Minister Yasuhiro Nakasone, who oversaw the privatization of NTT Corp., the country’s biggest IPO, in 1987, amid a wave of state asset sales in the U.S. and the U.K.

Nakasone’s dream was shattered after the asset bubble burst at the end of the decade. NTT, after peaking at ¥15,294 a share in May 1987, is now trading at less than a third of that price, in the range of ¥4,400 to ¥4,600 a share.

“Nakasone was following that model of shareholder democracy,” said Peter Tasker, founding partner of hedge fund Arcus Investment Ltd., who has lived in Japan since 1977. “Abe is trying to rebuild what Nakasone did and bring back that individual shareholding culture.”