In September, there were IPOs that had no maximum provisional price based on the bookbuilding process. All 88 of the 2007 IPOs through the August 30 offering of Arcland Service used the maximum provisional price as their offering prices. But this practice came to an end in September. Only one September IPO was sold at the maximum price. Of the other three, one was sold at the minimum and the other two at an intermediate price. The reason is that the opening price has fallen below the offering price for most IPOs since early August. This trend continued in September. Even though securities companies cut the offering prices of the September IPOs, the opening prices were below the offering prices of all four offerings. As a result, the 2007 average premium for opening prices over offering prices fell from 44.1% at the end of August to 41.1% at the end of September.
On the secondary market, 72 of the 93 IPOs in 2007, or almost 80%, had closing prices on September 28 that were below their respective opening prices. The opening price has become the ceiling for a large number of IPOs. On the other hand, the September 28 close was higher than the offering price for 40 of the 93 IPOs in 2007, including 19 of the 37 IPOs since May. These figures show that there are currently no opportunities for investors to make a profit from buying IPOs at the offering price and selling at the opening price. However, there are opportunities for investors who buy recent IPO stocks once selling pressure from investors who bought at the offering price has ended. IPO data for 2007 indicate that most of these stocks will probably return to the offering price. These trends in secondary market prices of recent IPOs will be extremely valuable in determining the direction of secondary market prices of recent IPOs between now and the end of 2007.
There are 10 IPOs scheduled for October, slightly fewer than the average for this month. The most significant offering is the Sony Financial Holdings IPO on October 11. This IPO alone accounts for ¥348 billion of the approximately ¥358 billion that all 10 October IPOs will procure. In fact, Sony Financial Holdings will be largest IPO of the year in Japan, with projected domestic proceeds of ¥217.6 billion from primary and secondary offerings. That means securities companies will collect ¥217.6 billion from Japanese investors during the subscription period (October 2 to 5). But if a subsequent upturn in the stock price significantly increases the market value this initial ¥217.6 billion investment, individual investors are very likely to adopt a much more positive view of IPOs.
Furthermore, offering prices for the October IPOs were determined during September, when investor sentiment was generally negative. As a result, there is a high probability that the initial market prices of many of these IPOs will be far below valuations of the stocks of peer companies. In addition, although growth in the number of IPOs in the final months of each year tends to create an oversupply, this problem is unlikely to occur in 2007. Consequently, while investors naturally need to examine individual issues carefully, investors are generally very likely to earn short-term gains by aggressively buying recent IPO stocks when market prices fall well below their opening prices.
