By Brad Frischkorn
TOKYO—Otsuka Holdings Co. capped a long-awaited initial public offering with a 1.9% rise in its debut Wednesday, easing fears of another post-listing breakdown that could tarnish an otherwise fairly robust year for offerings in Japan.
Otsuka, a Japanese pharmaceuticals maker, rose to 2,140 yen ($25.56), up from its launch price of 2,100 yen but well off its intraday high.
The performance came on the heels of cosmetics maker Pola Orbis Holdings /zigman2/quotes/204929748/delayed JP:4927 +5.98% ' listing a few days earlier, when the stock struggled to trade above its IPO price. It has since only lost ground.
Several traders said that because of similarities between the two as defensive issues, Pola's weak Dec. 10 kickoff might be a bad omen for Otsuka. On Otsuka's first day, at least, that wasn't the case.
"The 28% year-to-date fall in the Bloomberg IPO index suggests deals have been priced too richly, and Otsuka seemed no exception," said Nicholas Smith , equity research director at MF Global. "Now, with $4 billion in cash on the balance sheet, its 1.3% dividend yield seems derisory, especially when compared to peers like Takeda Pharmaceutical /zigman2/quotes/201302442/delayed JP:4502 0.00% at 4.6%."
Mr. Smith added that IPO allocations to passive funds appears to have been light. Some 60% of Otsuka's shares were marketed to overseas investors, and demand for that tranche of new stock pushed the subscription rate to a healthy three times, according to a banker involved with the IPO.
As such, pent-up demand for inclusion in indices could spur buying that supports the share price, at least for the next six weeks, Mr. Smith said.
The day's broader market moves also may have supported the stock. The Nikkei Stock Average closed down for only the second time in the last six sessions, as the Bank of Japan's tankan quarterly business survey, released before the market opened, showed sentiment among big manufacturers deteriorated for the first time since March 2009. Their future outlook was also weak.
Otsuka's peers, such as Astellas Pharma /zigman2/quotes/205432752/delayed JP:4503 +0.38% Inc. and Eisai /zigman2/quotes/203064480/delayed JP:4523 -5.29% Co., also closed higher Wednesday. But it wasn't clear that they benefited from any meaningful rotation into defensive issues such as drug makers utilities, and food stocks.
Based on Japan's demographics, a fundamentally bullish case can be made for shares such as Otsuka: the nation's population is rapidly aging, and older investors typically invest for yield. High dividend-yield stocks are now more attractive because the alternative—bonds—have such low yields.
But Otsuka faces the same structural problems as other major pharmaceutical companies, including the expiry of drug patents, said Takeshi Osawa , senior fund manager at Norinchukin Zenkyoren Asset Management. Signs of a recovering global economy also may make stocks such as Otsuka—which typically benefit from a search for safety—challenging investments.
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