At seven, the number of November IPOs was slightly below average for this month. By market, there were three IPOs on JASDAQ, one on JASDAQ/NEO, one on OSE Hercules, one on the Nagoya 2nd section, and one on Nagoya Centrex.



The opening prices of the seven IPOs were an average of 59% above their respective offering prices. This is higher than the 47.8% average thus far in 2007. But opening prices of the November IPOs were far from consistent. Four of these IPOs started trading below their offering prices. But Ubiquitous, which was listed on the new NEO market of JASDAQ, opened at price that was four times higher than the offering price. This issue alone significantly boosted the monthly average for the opening price premium.

Early in November, global stock markets weakened as financial institutions began disclosing losses associated with subprime loans. Japan’s small-company stock markets were no exception. Due to the November downturn in stock prices, the performance of the stocks of companies that conducted a 2007 IPO has become even worse. Of the 112 IPOs thus far in 2007, only nine were trading above both their offering prices and opening prices at the end of November.

There will be nine IPOs in December. Since these issues will procure a total of only about ¥16 billion, the offerings will probably not upset current supply-demand dynamics in the stock market. Of most interest are the two December IPOs that will list on JASDAQ’s NEO market. The first listing on this market was in November. WebMoney is one of two IPO companies that will join the NEO market in December. This company sells electronic money that can be used for e-commerce purchases. Investors have high expectations for this company’s growth because of the rapid increase in the number of users. That means WebMoney is very likely to be just as popular as Ubiquitous, the first NEO market listing. The second December IPO on the NEO market is Japan Tissue Engineering. This biomedical company plans to post a loss of more than ¥1 billion in its current fiscal year. Furthermore, the company plans to announce losses in the following two fiscal years, according to information provided under the unique “milestone disclosure” requirement of the NEO market. These projected losses make it extremely difficult for individual investors to determine a suitable valuation for this stock.

During the last three months of 2007, there are only 28 IPOs. This is the smallest number of IPOs for this period since 2000. One reason is the inability of companies to procure a sufficient amount of funds from an IPO because of low prices on small-company stock markets. Another cause is tighter rules for internal controls imposed by the Financial Products Exchange Law. Next year’s requirement for quarterly financial reports is yet another new barrier to companies considering an IPO.

Higher hurdles for IPOs are prompting companies to choose securities companies with the skills needed to guide their clients through the difficult listing approval process. Because of this, about 70% of the 28 IPOs during the last three months of 2007 were handled by either Nomura Securities or Daiwa SMBC Securities. This trend will probably continue, leading to growth in IPO lead underwriting contracts for these two securities companies. Consequently, individual investors should consider opening accounts at both of these securities companies. As customers, they will be in a much better position to participate in IPOs at the offering prices.