(Bloomberg) -- Tokyo Metro Co. announced on Monday a provisional price range for its initial public offering that’s projected to be Japan’s biggest in six years.
The price range of ¥1,100 ($7.43) to ¥1,200 compares with the indicative price of ¥1,100 per share declared earlier and values the subway operator at between ¥639.1 billion and ¥697.2 billion.
The IPO of the company, one of two subway operators based in Japan’s capital, is seeking to raise at least ¥319.6 billion, at a time when the nation’s equity market is showing signs of recovery. The deal would be the biggest since SoftBank Corp.’s $21 billion listing in December 2018, and could raise as much as ¥348.6 billion.
The company’s price range “looks much cheaper than its peers in terms of the dividend yield and price-earnings ratio,”said Naoya Kawai, chief investment officer at Fundnote, a Japanese asset management firm. “This is a great deal for investors,” he said.
Dividend yield for Tokyo Metro is 3.3% to 3.6%, calculated based on the price range and its estimated dividend of ¥40 per share for the fiscal year ending March 2025. That compares with the estimated yield of 2.2% for Kyushu Railway Co. and about 1.9% for East Japan Railway Co.
“Investors would buy the stock on dividend expectations rather than capital gains,” said Shingo Ide, chief equity strategist at NLI Research Institute. “A stronger yen won’t be a negative factor for the company, so traders are likely to purchase the shares amid concerns about the currency’s gains.”
The nation’s equity capital market is becoming more active, with management buyouts also on the rise, as its benchmark share indexes climb back up after tumbling in August.
“We have seen a higher level of M&As and MBOs in the Japanese market over the past year, and so it is good to see large new listings,”said Zuhair Khan, portfolio manager at UBP Investments Co. “I believe the breadth of listings across different sectors is one of the positive characteristics of the Japanese stock market. It gives investors lots of choice.”
Japanese equities plunged on Aug. 5, but since then the Topix and Nikkei 225 share benchmarks have both rebounded more than 20%. A renewed slide in the yen is supporting exporters, but the indexes remain below record levels reached earlier this year.
The offering for 290.5 million shares is scheduled to price on Oct. 15 and is expected to begin trading on the Tokyo Stock Exchange’s Prime market on Oct. 23.
Tokyo Metro was set up in 2004 and operates nine subway lines in the world’s most populated metropolitan area. It serves an estimated 6.52 million passengers per day. Japan’s government owns 53.42% of the company while the Tokyo Metropolitan government owns the remaining 46.58%. Their combined shareholding will halve following the offering.
Tokyo is expected to be the only city in the nation that will see population increases until 2040, according to a forecast made in 2023 by National Institute of Population and Social Security Research.
“The company operates subways in a city that is less affected by shrinking population,” said Tomoichiro Kubota, senior strategist at Matsui Securities Co. The price range shows “strong demand”, he said.
--With assistance from Hideyuki Sano.
(Adds fresh quotes and additional details)
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