Stock investors in Japan have gotten badly burned this year, and yet they're eagerly lining up to plunk down $34,102 a share for stock in a mobile phone company scheduled to go public Thursday in what is expected to be the world's largest initial public offering ever.
NTT Mobile Communications Network Inc., better known here as NTT DoCoMo, expects to raise $18.6 billion, which means its market capitalization on the Tokyo Stock Exchange -- measured by multiplying the number of shares by the price of those shares -- will be ranked second, after Toyota Motor Corp.
In recent months, the global economic turmoil has caused companies around the world to yank other stock offerings, expecting that the sum they would attract would be disappointing.
But in Tokyo, investors are clamoring for DoCoMo, in part because the fast-growing and profitable cellular phone business appears to be one of the few that are thriving despite Japan's deepening recession.
In fact, buyers requested almost twice as many shares as NTT plans to sell. That means some buyers will get less than they wanted or bid up the share price trying to buy more.
"Finally some good news," one securities analyst said with a sigh.
Japan's financial markets could use some good news. In the midst of the country's worst recession in years, its teetering banks are pulling loans from struggling companies, while investors are yanking their money out of the stock market. Depositors are withdrawing money from smaller banks, and companies are bouncing checks.
Thus all eyes are on DoCoMo, with some in the brokerage industry predicting that the stock offering will be just the pick-me-up the the weary Tokyo financial market needs.
"This IPO will encourage individual investors to come back to the stock market. Once you've made money on this stock, you may feel more optimistic about the potential to make money in other stocks," said Shigemi Nonaka, senior adviser to Tokyo Associated Capital, a fund-management company.
But some traders insist this is bad news, not good, because investors are not pouring new money into the market. Instead, investors are dumping other shares to free up money to buy the DoCoMo stock.
"DoCoMo will raise 2 trillion yen, but that doesn't mean 2 trillion yen will be coming into the market. Instead, 2 trillion yen of other stock will be sold, and actually this is already happening. The market is declining due to this factor," said Atsuto Sawakami, president of Sawakami Asset Management Inc.
The deal will generate total fees of about $500 million for the brokerage companies involved, according to the prospectus. Japan's Nikko Securities Co. and Goldman Sachs & Co. of the United States are the co-lead managers, but many brokerage firms in town have at least a small part of the action. It is not clear how the fees will be distributed. Goldman Sachs recently dropped plans for its own IPO because of the recently slumping U.S. stock market.
The government also is expected to benefit from the DoCoMo sale. It owns 65.7 percent of NTT's shares and wants to sell a huge chunk of that stock to raise money to finance tax cuts. It was prevented in the past from doing that out of fear that a flood of NTT shares could damage the market and send NTT prices tumbling. But now NTT is expected to use the proceeds from the DoCoMo sale to buy back shares of its own stock. That might pave the way for the government to sell its NTT shares as soon as December, according to analysts.
Prime Minister Keizo Obuchi's older brother, Mitsuhei Obuchi, also will do well. Mitsuhei Obuchi, the mayor of a small town north of Tokyo, holds 270 shares of DoCoMo, making him the second-largest individual shareholder. He stands to gain about $9.2 million from the offering. Japan's main opposition party said it would investigate the deal. NTT and Obuchi's office have denied any wrongdoing.
DoCoMo was established in 1991 as a subsidiary of Nippon Telegraph & Telephone Corp. NTT's stake in the company will be lowered to 67 percent from 95 percent. NTT will sell 218,000 of its shares, along with 327,000 new shares.
NTT, the largest telephone company in Japan, was itself the focus of a buying frenzy more than a decade ago when the Japanese government sold the first shares to the public. Households all over Japan bought shares, believing them to be a can't-miss investment, only to see them plummet in value in ensuing years as NTT officials were implicated in a bribery scandal and the Japanese stock market and economy weakened. NTT shares currently trade at about one-third the price they commanded in early 1987.
Asset managers explained the enthusiasm for DoCoMo stock, at a time when stock markets around the world, including Tokyo, are plummeting, by noting two major factors: DoCoMo's market capitalization is expected to account for about 3 percent of the total market capitalization of the Tokyo Stock Exchange. These days, with Tokyo stocks plummeting, many fund managers say that at a minimum, they must perform as well as the overall Tokyo stock market. Thus they must hold shares of a company that will have a significant impact on the market's performance. "If your fund is $100 million, you need $3 million in DoCoMo stock," said one market strategist.
The cellular phone business seems to be one of the few recession-proof industries in Japan these days. The number of DoCoMo cellular phone subscribers rose from 2.2 million in 1995 to more than 20 million, and it is still growing at more than 40 percent a year. DoCoMo has captured 57 percent of the subscribers under tough competition with two other companies. Despite the recession, DoCoMo is expecting $1.64 billion in earnings for the fiscal year ending March 31, 1999.
"There are some things that people do whether the economy is going up or not. Making a cheap phone call to a friend is something you don't really think about, even in recessionary times," said Clifford Shaw, president of Merrill Lynch Mercury Asset Management Japan Ltd.
Analysts predict that DoCoMo's growth will slow. DoCoMo could also be hurt by its plan to absorb NTT's money-losing personal handphone system, or PHS, subsidiary. The PHS system has smaller coverage and is less popular. "Nevertheless, compared with an awful lot of other companies in Japan, DoCoMo looks like it has a reasonably good growth prospect," Shaw said.
If that attitude dominates the market for the next several weeks and months, DoCoMo's stock could buoy the market. But if the price plummets, selling pressure will mount. One market strategist, who asked not to be identified, said such pressure could send the market "spiraling downward."
But Nonaka said: "I'm not so pessimistic. After all, you tend to get rewarded when you buy in a bear market." Special correspondent Akiko Kashiwagi contributed to this report. CAPTION: Kouji Ohboshi, left, is chairman and Keiji Tachikawa is president of NTT DoCoMo, which has scheduled what may be the world's largest initial public offering ever. ec