There were 12 IPOs in August compared with 11 one year ago. Three IPOs were on TSE Mothers, there were two each on the TSE 1st section, OSE Hercules and JASDAQ, and one each on the TSE 2nd section, Fukuoka exchange and Fukuoka Q-Board. During the first eight months of 2007, there have been 89 IPOs, a decline of 23 compared with the 112 IPOs in 2006 by the end of August.

Opening prices of the 12 IPOs in August were only 15.5% above the offering prices on average, far below the average of 44.1% for all 89 IPOs thus far in 2007. Three August IPOs had particularly high opening price premiums: Full Speed (63%), Dear Life (71%) and the very popular August 8 IPO of China Boqi Environmental Solutions (73%). On the other hand, the opening prices of Nisso Pronity, which was listed on Fukuoka Q-Board, was 24% below the offering price and Kito, which returned to public ownership, opened at 19% below its offering price.

A comparison of August 31 closing prices of all IPOs since January 2006 reveals some interesting trends. Market prices of almost all 2006 IPOs are currently below the offering prices. Furthermore, some of these prices are as much as about 60% below the offering prices. But the drop in prices is smaller for the 2007 IPOs. For the IPOs since April 2007, August 31 prices are only about 20% below the offering prices.

These figures demonstrate that the offering prices of IPOs since the spring of 2007 have been quite low.

Offering prices are determined by using peer-company comparisons. A decline in the stock prices of publicly owned peer companies thus produces a similar decline in an offering price. Furthermore, since individuals purchase most of the shares sold through IPOs, a secondary market stock price that is well below the offering price makes it difficult for a company to attract more shareholders. The low secondary market prices of recent IPOs are making individuals reluctant to participate in new IPOs. Due to this situation, we are seeing companies apply a much larger IPO discount to valuations obtained from peer-company valuations. The objective is to prevent secondary market prices from falling below offering prices.
Lower offering prices are having an impact on funds procured through IPOs. Intermestic decided to postpone its IPO that was planned for August 31. Apparently, the company could not longer procure a sufficient volume of funds because of the low offering price.

Only four IPOs are planned for September compared with 15 one year ago. Even in September of 2003, which was the year with the smallest number of IPOs since 2000, there were 16 IPOs. The low level of activity in September makes it very likely that we will see only about 120 or 130 IPOs in 2007. One reason is that securities companies and stock exchanges are applying stricter IPO approval standards. But the recent liquidation of the Misuzu accounting firm is probably another cause.

When the number of IPOs drops to this level, investors should realize that the supply-demand dynamics of the IPO market become different than in an ordinary year. In Japan, the majority of IPOs tend to take place between September and December since most companies have a March fiscal year end. Each year, opening prices are generally weak during this period because of the large number of IPOs.