Sony Corp's financial arm cut the price of its initial public offering to 348 billion yen ($3 billion) on Tuesday to better reflect weaker appetite for financial shares in the wake of the US subprime crisis. Turmoil in global stock markets will likely hit equity financing in Japan and the most of Asia, forcing companies to delay IPO plans or reduce the offer price.
Sony Financial Holdings, which oversees the group's online banking and insurance businesses, set a price range of 380,000 to 400,000 yen per share for its October 11 IPO, compared with an assumed price of 415,000 yen announced earlier this month.
"This indicates that demand for financial shares is not that strong," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments. "Globally financial shares are tumbling, so this probably is not a time to go after an issue like this aggressively. You might be better off waiting until it falls for a chance to buy in."
Japan's banking index has lost 12 percent since the financial unit announced its planned IPO as well as the assumed price on September 4. Investors have been nervous over concerns that the credit crunch could be tightening, and global credit worries flared up after thousands of savers lined up on Monday to pull deposits from British housing lender Northern Rock.
If the IPO price is fixed at the top end of the range and an overallotment option is exercised, it will be Japan's largest market debut since Aozora Bank's 380 billion yen ($3.3 billion) listing last November, according to research firm Dealogic.
Proceeds from the listing are expected to enable Sony to bolster its core electronics operations. Sony competes head on with Samsung Electronics Co Ltd and Panasonic maker Matsushita Electric Industrial Co Ltd in such fast-growing but highly competitive businesses as flat TV operations.
The financial arm expects its net profit to rise 50 percent to 15 billion yen in the business year to March 2008 from a year earlier. With 90 percent of its revenues and 80 percent of its recurring profit coming from life insurance operations, Sony Financial is set to become Japan's second listed life insurer after T&D Holdings Inc.
Based on the insurance operations' embedded value of 900.5 billion yen as of the end of last business year, the middle of the price range of 390,000 yen a share would put Sony Financial's price-embedded value ratio at 0.94, higher than T&D's 0.76.
Embedded value, widely used to assess corporate value of life insurers, is calculated based on a company's adjusted net asset value and the present value of future profits from existing contracts with policyholders.
"Looking at embedded value, it doesn't really look all that cheap compared with T&D. It looks a bit overvalued, even if it does have good growth potential," Daiwa SB Investments' Ogawa said. The ratio for Sony Financial, however, should be treated with caution since embedded value for the Sony unit only represents the life insurance portion of the company and does not take into account its casuality insurance and online banking businesses.
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