Bain could be third time lucky in Japan
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Anshuman Daga
SINGAPORE, May 2 (Reuters Breakingviews) -It could finally go Bain Capital's way in Japan. The investor is pushing for a listing of Kioxia after the Japanese chipmaker's plans to merge with a U.S. partner stalled last year, and an earlier effort to float the business failed. There is an urgency to pare a $6 billion company loan. At least timing is on the sellers' side.
It is relatively easy to find assets to buy in Japan. From conglomerate castoffs to take-private deals, financial sponsors have plenty to choose from. A Bain-led consortium's $18 billion leveraged takeover in 2018 of Toshiba's memory chip unit, rebranded as Kioxia, marked the high point of deal activity.
But finding an exit, even a partial one, for that landmark purchase has been difficult. Kioxia's aborted $3.2 billion IPO in 2020 gave way to multiple failed attempts to merge it with Western Digital WDC.O. Bain's fellow investor SK Hynix opposed a deal. Now the buyout firm is back to the drawing board. It has proposed an initial public offering of the NAND flash memory maker, Reuters reported last month, citing a source.
Cashing out via capital markets isn't common for private equity firms in Japan. Large floats are rare, institutional investors tend to shy away from deals, and secondary market performance is patchy. A successful debut by Kioxia would build on some recent gains. Buyout giant KKR KKR.N cut its stake in portfolio firm Kokusai Electric 6525.T in October via a $725 million IPO. Since its debut, the semiconductor equipment maker's shares have surged 75% - thanks to an outperformance in chip-related stocks and growing appetite for Japanese equities.
Kioxia has some things on its side too. The industry's glut of inventory is easing and demand from data centre servers is growing. That may help investors look past the company's operating loss, which narrowed by about one-third to $435 million in the quarter ending December from the preceding three months.
Japan could use some successful listings. Kokusai's IPO was the largest in five years and attracted strong interest from foreign investors. Still, the number of financial sponsor-backed IPOs remains tiny. Last year, nine such companies listed, raising a total of $1.6 billion, marking the highest tally of deals since 2021, per Dealogic.
The rarity of large debuts and Kioxia's refinancing needs ought to encourage sellers to price any deal at a level that it can finally fly. That would get Bain out of a tight spot; it also would establish public markets as a trustier venue for future exits for all the buyout shops upping their allocations to the country.
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CONTEXT NEWS
Bain Capital has recommended an initial public offering of Japan's Kioxia, Reuters reported on April 16, citing a person familiar with the matter.
The move is part of a plan to help the chipmaker refinance a $5.8 billion loan coming due in June, Reuters said.
A Bain-led consortium including South Korea's SK Hynix acquired Toshiba's semiconductor unit, which was renamed Kioxia, for $18 billion in 2018. Toshiba retains a 41% stake.
Editing by Una Galani and Katrina Hamlin
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