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Dai-ichi Life Surges in Biggest IPO in Two Years


Date: Thursday, April 1, 2010
Author: Bloomberg

Dai-ichi Life Insurance Co., Japan’s second-largest life insurer, surged in Tokyo trading after the world’s biggest initial public offering in two years.

Dai-ichi, which changed its name from Dai-ichi Mutual Life Insurance Co., closed at 160,000 yen today, 14 percent higher than its initial offering price of 140,000 yen. Trading was halted as soon as the initial price was set. Dai- ichi was the most actively traded stock in Japan. By value, 150.7 billion yen ($1.6 billion) of shares changed hands, more than three times as much as No. 2 Toyota Motor Corp.

The company’s market value at its offering price was equal to 0.56 times embedded value, or the sum of its net assets and the current value of future profits from existing policies. That compares with 0.46 times for T&D Holdings Inc., the nation’s largest publicly listed life insurer, and 0.76 times for Sony Financial Holdings Inc.

“The shares don’t seem expensive if you look at their embedded value, which indicates their potential market worth,” said Junichi Misawa, head of equity investment at Tokyo-based STB Asset Management Co., which oversees about $14 billion. “It’s a level that would make it easy for institutional investors to buy the shares.”

World’s Largest IPO

Dai-ichi’s $11 billion IPO is the world’s largest since San Francisco-based Visa Inc. sold $19.7 billion of shares in March 2008. In Japan, it’s the biggest offering since NTT DoCoMo Inc.’s $18.1 billion deal in October 1998, data compiled by Bloomberg show.

“In one day, $11 billion comes into the market,” said Ed Rogers, chief executive officer of Tokyo-based hedge-fund adviser Rogers Investment Advisors Y.K. in an interview with Bloomberg television in Tokyo today. “That’s great for the equity markets of Japan. It’s also great for the economy of Japan because Dai-ichi is not going to just sit on it.”

The possible inclusion of Dai-ichi in FTSE Group and MSCI Barra equity gauges will likely prompt some investors to buy the stock to mirror the indexes’ returns. FTSE Group said on its Web site that it will add Dai-ichi shares to three of its gauges at the close of trading on April 2. The effective date for trading is April 5. MSCI officials weren’t immediately available to comment.

Passive Investors

“Passive investors have no choice but have to buy Dai- ichi shares regardless of their price or growth outlook,” said Hiroshi Fujimoto, a fund manager at Shinkin Asset Management Co., whose company manages the equivalent of $3.8 billion in Tokyo. “Hedge funds and retail investors will likely buy Dai-ichi to benefit from the purchase of passive investors.”

Initial public offerings with a “significant” size may be included in the MSCI indexes before the index’s regular reviews, according to the Web site of New York-based MSCI Barra. The size of Dai-ichi’s IPO meets MSCI Barra’s criteria of free float-adjusted market capitalization of at least $5 billion, said Osamu Shintani, an analyst at Nomura Holdings Inc. in Tokyo.

“There’s a good chance early inclusion will be given for Dai-ichi,” Shintani said, with April 15 being the approximate date for inclusion.

Dai-ichi, established in 1902, had 8.2 million policyholders as of March 2009, according to the company’s Web site.

Nomura Holdings Inc., Mizuho Financial Group Inc. and Bank of America Corp.’s Merrill Lynch unit were hired to manage the sale. Goldman Sachs Group Inc. was a global arranger.