Kioxia's initial public offering (IPO) experienced a 14% surge on Wednesday, resulting in a company valuation exceeding ¥890 billion ($5.80 billion). This strong market debut reflects significant investor confidence and positions the Bain-backed semiconductor manufacturer as the third-largest IPO in Japan this year.
The leading memory chip manufacturer successfully completed its initial public offering (IPO), raising ¥120 billion by pricing shares at ¥1,455, within the anticipated range. The stock opened at ¥1,440, slightly below the offering price, but quickly reached an intraday high of ¥1,689 before closing its first day of trading at ¥1,601.
"I’m relieved to see we’ve successfully listed," stated Kioxia's CEO Nobuo Hayasaka during a press conference.
Previously known as Toshiba Memory, Kioxia was acquired for 2 trillion yen in 2018 by a consortium led by Bain after a protracted and contentious sale process. Toshiba decided to divest the business following significant financial difficulties stemming from issues in its nuclear division.
"The market seems to have responded positively to the valuation discount provided," remarked Jon Withaar, who oversees an Asia-focused special situations hedge fund at Pictet Asset Management.
"There appears to be no immediate selling pressure. Today's performance is promising for future private equity exits in Japan, assuming valuations remain reasonable."
Kioxia's market entry occurs in a robust year for IPOs in Japan, which has seen significant offerings from companies like Tokyo Metro and Carlyle Group-backed Rigaku, a testing tool manufacturer.
According to LSEG data, IPOs in Japan have raised over $6 billion so far in 2024, marking the best year since 2021, despite the number of IPOs being at its lowest in a decade.
VALUED ASSET
The journey to an initial public offering (IPO) has been challenging for Kioxia, a name derived from the Japanese term "kioku," meaning "memory," and the Greek word "axia," meaning "value."
The acquisition of Kioxia by the Bain consortium was regarded as a highly sought-after asset and marked a significant move by private equity in Japan.
Since the acquisition, uncertainty has persisted, with Bain delaying its IPO plans two years later due to concerns regarding the global chip market's stability, influenced by rising tensions between China and the United States.
Attempts to merge Kioxia with its partner Western Digital, which had initially opposed the sale to the consortium, were hindered by objections from Kioxia's investor, SK Hynix.
In October, Bain Capital abandoned its IPO plans for Kioxia after investors urged the buyout firm to nearly reduce its sought valuation of 1.5 trillion yen by half, according to reports from Reuters.
Following the IPO, Bain's ownership in Kioxia is expected to decrease to 50.7%, including overallotments, down from the previous 56.2%. Bain opted to divest only a minor portion of its stake due to the chipmaker's market valuation, as indicated by a source familiar with the firm's strategy.
Post-listing, there will be "no significant change" in the decision-making framework, with Kioxia continuing to consult Bain for investment decisions during board meetings, as stated by Hayasaka.
Kioxia's public offering is not anticipated to harm its relationship with Western Digital, although discussions regarding the integration of their businesses have not progressed, he noted.
While an IPO would provide Kioxia with additional fundraising opportunities in a capital-intensive sector, it would also subject the company to greater scrutiny regarding its financial performance.
In the quarter that concluded on September 30, the company reported a net income increase to 106 billion yen, up from 69.8 billion yen in the prior quarter, attributed to a better supply-demand equilibrium.
Nevertheless, certain analysts harbor reservations about the company's long-term prospects within the highly competitive memory chip market.
Richard Kaye, a Tokyo-based portfolio manager at Comgest, noted that "a suggested valuation of 4-5 times price/sales might reflect a premium due to scarcity within the Japanese semiconductor market; however, justifying this valuation beyond that remains a challenge." He further stated, "I am not particularly optimistic regarding Kioxia's future."