TOKYO—It is Japan's largest privatization in decades, offering
investors a chance to buy into a company with more than $2 trillion
in assets.
But for all the enthusiasm here over the initial public offering
Wednesday of Japan Post Holdings Co., this is far from a normal
private company. It still has to deliver mail to everyone,
regardless of profit, and its banking unit can't make home loans,
to name just two of the shackles with which it starts life as a
publicly traded company.
"Unless Japan Post Bank is permitted to expand into new
businesses, it may be hard to boost profits," said Rakuten
Securities chief strategist Masayuki Kubota.
In Wednesday's IPO, the government is selling 11% of the shares
of Japan Post Holdings to the public, and the holding company in
turn is selling 11% of the shares of its banking and insurance
units.
The triple listing has drawn strong interest from Japanese
retail investors, many of them buying stocks for the first time,
thanks to the public's familiarity with the post office and a
dividend yield likely to top 2%. Together, the share offerings are
set to fetch around $12 billion, making it the largest asset sale
by the government in nearly 30 years.
The government plans to sell as much as two-thirds of the
holding company and ultimately the two financial units are supposed
to be fully privatized, although no date has been set. "The future
business depends on how soon the government starts selling its
shares toward the full privatization," said Mr. Kubota of Rakuten
Securities.
The group has 24,000 post offices, far outnumbering all branches
of Japan's national banks combined. Most deliver mail, take bank
deposits and sell life insurance in the same building. In rural
areas, they often serve as the principal lifeline to the outside
world of commerce.
The business challenge of a privatized Japan Post starts with
its postal-delivery unit, which has been recording small operating
losses in recent quarters and has little hope of a turnaround since
the population of most of rural Japan is steadily falling.
Restructuring to cut costs is hard. Postmasters are some of the
most reliable supporters for rural lawmakers in Prime Minister
Shinzo Abe's ruling party, and their connections can help them
corral thousands of votes. Some of these postmasters own the land
under the post offices and pass down their jobs in the family.
Even the group's biggest earner, Japan Post Bank, faces
challenges. Though it is the country's largest bank by deposits, it
has only about 230 branches on its own, relying on the
postal-delivery arm's post offices to collect deposits, which are
limited to ¥ 10 million (US$83,000) per customer. The bank can't
make home loans or most other types of loans.
The limits are rooted in the post office's origin in 1871 as a
state-owned entity designed to bring basic postal and financial
services to distant corners of Japan. Until the early 2000s, few
imagined that the behemoth could be a candidate for privatization,
even after Japan privatized its national railway and phone company.
In 2005, then-Prime Minister Junichiro Koizumi, saying the nation's
economy needed a shake-up, made privatization the centerpiece of an
election campaign. He won in a landslide, prompting parliament to
pass privatization legislation.
JP Bank controls more than ¥ 200 trillion ($1.7 trillion) in
assets, making it one of the world's largest asset managers. Its
main profit comes from what it earns on those assets.
About half of the money is in Japanese government bonds. While
they have proven a good investment in Japan's slow-growing economy,
yields are now at a rock-bottom 0.3% on 10-year government bonds,
and the prospect for further gains is limited.
That is why JP Bank is trying to manage money more aggressively.
In its midterm business plan released in April, Japan Post said the
bank would increase its investments in foreign bonds and stocks by
30% over the next three years to ¥ 60 trillion.
Mitsushige Akino, chief fund manager at Ichiyoshi Investment
Management, said he expected a solid debut for the Japan Post IPO
because investors see it as a way to dip their toes into slightly
riskier assets while sticking with a government-backed entity.
"There is strong demand among retail investors who want to get
into asset management and think stocks are more attractive than
Japanese government bonds," Mr. Akino said.
JP bank has hired Katsunori Sago, a former executive with
Goldman Sachs Group Inc. in Japan, to head the asset-management
team. Specialists from Goldman Sachs and Barclays PLC have
joined.
In June, a group of ruling-party lawmakers proposed tripling the
deposit ceiling on postal savings to ¥ 30 million. Commercial
banks, which have been battling for decades to keep restrictions on
the postal bank, oppose the idea, saying JP Bank needs to hedge
against existing risks before it can be trusted to get even
bigger.
JP Bank "carries an enormous amount of interest-rate risk," said
Yasuhiro Sato, chief executive of Japanese megabank Mizuho
Financial Group Inc. and chairman of the Japanese Bankers
Association, at a news conference in July. "We think these kinds of
problems are going to be spotlighted even more as a publicly traded
company."
Write to Atsuko Fukase at atsuko.fukase@wsj.com
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(END) Dow Jones Newswires
November 02, 2015 11:05 ET (16:05 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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