Sony's financial arm will raise $3 billion after setting its IPO price at the top end of an indicated range as investors looked past the U.S. subprime crisis and bet on its growth potential in the banking and insurance markets.
The listing of Sony Financial Holdings marks the latest step by the Japanese electronics and entertainment conglomerate to sell non-strategic assets and focus resources on core products such as digital cameras, video game consoles and flat screen TVs.
The sale of shares in the unit would boost its pretax profit by 78 billion yen ($670 million). But Sony did not revise its full-year forecast even though the gain is equal to roughly one-fifth of its pre-tax estimate of 420 billion yen.
"The price looks appropriate. Sony has a strong brand and there is a sense it will be able to leverage that and the group's resources to get a leg up on the competition," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.
"Because it is Sony it is seen as different than just any other financial or insurance stock," he said.
Sony Financial, which oversees the group's online banking and insurance business, priced the initial public offering at 400,000 yen per share, compared with a pre-set range of 380,000-400,000 yen, ahead of its listing on the Tokyo Stock Exchange on Oct. 11.
The timing of the price setting may have worked in Sony's favor. Japanese financial shares have rebounded in the past week as investor jitters over possible fallout from turmoil in U.S. subprime mortgage loan market receded.
Proceeds from the IPO, Japan's largest market debut since Aozora Bank's 380 billion yen listing last November, are expected to enable Sony to strengthen its core electronics operations, which account for about two-thirds of group sales.
The IPO, Japan's 10th largest on record, will also breathe some life into the country's sluggish equity finance market.
Even with the inclusion of Sony Financial, IPO volumes in Japan so far this year have reached $5.3 billion, barely half the amount in the same period a year earlier, according to Thomson Financial.
Thomson Financial attributed the sharp drop to tough conditions on Japan's start-up markets and tighter screening policies for potential IPOs.
The maker of PlayStation game consoles, Cyber-shot digital cameras and Vaio computers will offer 795,000 existing shares, cutting its stake in the wholly owned unit to about 60%. The financial unit plans to sell 75,000 new shares.
With 90% of its revenues and 80% 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.
Based on the insurance operations' embedded value of 900.5 billion yen as of the end of last business year, the 400,000 yen a share would put Sony Financial's price-embedded value ratio at 0.97, higher than T&D's 0.8.
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.
Ichiyoshi's Akino said Sony's brand recognition and growth potential probably justified the stock trading at a premium and predicted it would be a favorite among retail investors in large part because the Sony name carries well.
The IPO is being lead-managed by Nomura Securities and JPMorgan, which has experience in the insurance sector. JPMorgan was a bookrunner on Taiyo Life Insurance's IPO and advised on Taiyo's merger with Daido Life to form T&D Holdings.
Sony competes with South Korea's Samsung Electronics and Sharp in the flat TV market, and is locked in a battle with Microsoft and Nintendo for dominance in the global video game industry.
The listing of the financial unit follows a string of asset sales in a restructuring led by Chief Executive Howard Stringer.
Sony earlier this year cut its holdings in online broker Monex Beans Holdings and last year sold interests in a wide range of retail activities such as cosmetics and restaurants.