The downturn, the steepest since a 78% plunge in 2008, also reflects the Tokyo Stock Exchange’s struggle to build up its new Growth market as an attractive place for investors willing to take risks on up-and-coming companies.
As investors focus on profitability over sales growth, tech companies that require heavy upfront investment found it harder to achieve high market value. Informetis, which proposes energy-saving plans using artificial intelligence, and health management system developer Wellness Communications both postponed planned listings.
The IPOs that did go ahead were generally smaller, with the average market cap based on the opening price falling by a third to ¥15.4 billion (US$107 million). The only company to achieve market capitalisation above ¥100 billion upon listing was Anycolor, an agency for so-called VTuber virtual celebrities, while three companies that listed in the year-earlier period cleared that mark.
The total amount raised in IPOs tumbled around 60% to ¥30 billion, while the average per company fell 30% or so to ¥800 million, as demand declined dramatically among the foreign investors who were behind last year’s high market caps.
Interest rate hikes in the US and Europe, along with the impact of Russia’s invasion of Ukraine, are major factors in the IPO drop-off. But the decline also highlights a dearth of early results from the TSE’s recent overhaul to make the market more attractive for both investors and businesses seeking to raise money.
The bourse reorganised in April into three markets: Prime, Standard and Growth. One goal was to change the image of the startup-heavy Mothers market, which hosted the bulk of IPOs in 2021, as what a representative called a “steppingstone toward the first section”.
The new Growth market is being promoted as a place for companies with high growth potential. While it features less-stringent prerequisites for listing, such as in the percentage of free-floating shares, companies have to issue reports on their business plans and growth prospects at least annually – moves aimed at encouraging quantity and quality, respectively.
“It’s become more important to communicate our business plans to investors,” said Hidetoshi Uchiyama, CEO of Unerry, which listed in July. “I myself am involved in preparing the materials and giving explanations to investors.”
The reorganisation has had some impact, but the results so far do not pass muster with market watchers.
Masayuki Kubota, chief strategist at Rakuten Securities, notes that the Growth market still includes companies that are listed on the Mothers board and have languished since. “To cement a high-growth image for the Growth market, they should make the criteria for delisting stricter,” Kubota said.
Seiichiro Iwamoto, a fund manager at Asset Management One, proposed “creating indexes for specific themes, such as environmental issues and digital transformation”.
If the market can bring in more investors, the influx of money would make it more attractive to promising companies, in turn, boosting investor interest further. A long-term approach will be key to creating this virtuous cycle.