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WealthNavi is the highlight in Japan’s IPO boom



Over the final two weeks of 2020 — a fortnight in which US and European equity markets may be relaxing into holiday mode — their Tokyo counterparts will be shifting into a historic listing overdrive.

There is a dazzling array of new companies coming to market, with businesses ranging from AI and ecommerce platforms to gyms and haircare products. But brokers say all eyes will be on a single fintech name: a fully-automated asset management and robot advisory platform for retail investors called WealthNavi.

The IPO, scheduled for December 22 and expected to value the company at ¥45bn-¥65bn ($430m-$620m), will be the first of a fintech asset management platform in Japan.

WealthNavi has attracted a relatively young customer base, and its success comes amid a broader Japanese embrace of online financial products and platforms that is itself driving the new wave of IPOs.

The lead manager of the WealthNavi listing, which is expected to be among the country’s biggest this year, is SBI Securities — one of WealthNavi’s largest shareholders and an aggressive online brokerage that wants to challenge Japan’s traditional giants, Nomura and Daiwa.

The extraordinary spree of IPOs is partly a release of capital-raising pressures pent-up over a year of uncertainties, and partly a response to a sustained rally in smaller growth stocks. The TSE Mothers market for start-ups rallied to a 14-year high in mid-October — 148 per cent higher than its year low in March.

JPX group — owner of the Tokyo Stock Exchange, the Mothers market and Jasdaq — says that 25 companies will carry out initial public offerings between December 15 and December 29. If the current schedule holds, the year will end with a 13-year high of 102 listings.

Three companies are listing on Christmas Day alone, and, most significantly for online brokerages such as SBI, Rakuten and Monex, all but a small handful will make their debut on Mothers — by some way the favourite hunting-ground of Japan’s growing army of retail investors trading through online platforms.

In what the CEO of one online brokerage described as a “coming of age” moment, online account openings in Japan surged by around 1m over the first six months of 2020, increasing the potential demand for new issues, especially in areas seen as new frontiers of technology.

A large part of WealthNavi’s appeal to customers — many of whom are now likely to become shareholders through the IPO — has been its offer of diversification. It offers a much wider range of asset types and geographies than the big, traditional brokerages.

Since the Bank of Japan’s negative interest rate policy was first introduced in 2016, Japanese savers have seen ever greater urgency in the search for yield — even when that has caused them to look internationally.

The company has also been busy forming partnerships within Japan’s existing financial services industry. In 2017, it formed a partnership with Sony Bank, and more recently with Okasan Securities.

In its biggest coup, the company in August announced a business alliance with Japan’s largest megabank, MUFG. The service will offer MUFG customers automated recommendations on asset allocation, tax optimisation and other financial advice.

Quick Fire Q&A

Company name: XTransfer

When founded: 2017

Where based: Shanghai

What do you sell, and who do you sell it to: We provide a payments platform for small and medium-sized enterprises (SMEs) in China that enables them to trade with the rest of the world.

How did you get started: SMEs were underserved by traditional banks and we wanted to solve the financial pain points facing smaller Chinese exporters.

Amount of money raised so far: $25m

Valuation at latest fundraising: N/A

Major shareholders: Telstra Ventures, MindWorks Ventures, eWTP Fund, China Merchants Venture Capital, 01VC, Yunqi Partners, and Gaorong Capital

There are lots of fintechs out there — what makes you so special: Never before has an AI-driven risk management platform been able to connect China’s SMEs with the international banking community.

Further fintech fascination

Follow the money: US insurtech companies are attracting plenty of attention. Reuters reports that Hippo Enterprises, a home insurance technology company, has pulled in a $350m investment from Japanese insurer MS & AD. Meanwhile, TechCrunch says that Metromile, which specialises in pay-by-the-mile car insurance, is to float in New York via a special purpose acquisition company.

Wirecard fallout: The Financial Times reports on the continuing repercussions of the Wirecard collapse. In a string of developments over the past week, the German audit watchdog told prosecutors that EY may have acted criminally during its work for the company. It also emerged that the same body is investigating Deutsche Bank’s head of accounting, Andreas Loetscher, over work he did in his previous role at EY where he was one of the partners responsible for the Wirecard audit.

Crypto chronicles: The Financial Times says that Libra, the Facebook-led digital currency, is set to launch as early as January — but in a limited format. The Libra Association had originally planned to launch several currencies, but that plan has been scaled back to just one initially, with others to follow later.

AOB: Ian Rogers, the chief digital officer of luxury group LVMH, is to join a French fintech start-up called Ledger, reports the Financial Times; Poland’s largest insurer, PZU, has teamed up with Tractable to streamline motor claims, says altfi; UK payments fintech Primer has raised £14m from investors including Accel, according to TechCrunch.

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India tech IPO boom to provide crucial test of investor appetite




Indian business & finance updates

Food delivery app Zomato has kicked off a flurry of stock market debuts by Indian start-ups that hope crackdowns on Chinese technology groups could prompt global investors to turn their attention to India’s tech offerings.

The $1.25bn initial public offering of Zomato in Mumbai, which launched last week, is expected to be followed in the coming months by the $2.2bn listing of Paytm, a payments and financial services app that has come to symbolise the excitement surrounding India’s digitalisation. Paytm and Zomato are both backed by Chinese billionaire Jack Ma’s Ant Group, while the former counts Japan’s SoftBank as an investor.

The IPOs arrive as investors become increasingly bullish on India following Beijing’s targeting of China’s internet groups. Ride-hailing business Didi was hit with a regulatory probe days after it raised $4.4bn in a New York IPO, sending shares of big Chinese tech stocks plummeting.

Bankers said the Indian listings represent a coming of age for the nation’s tech start-ups, where cash-burning businesses have until now been funded solely by private investors. However, some analysts have raised concerns that India’s equity markets are overheating and warned of regulators potentially targeting the sector. Investor demand for Zomato’s IPO outstripped supply by 32 times as of Friday.

“There’s a clamour for it, people have limited avenues to invest in Indian tech right now,” said Ausang Shukla, managing director of corporate finance at brokerage Ambit.

“Founders of fierce competitors of Zomato and Paytm, even they want the IPOs to be successful,” he added. “If they bottom out then the entire sector gets a bad name.”

Zomato and rival Swiggy, the two dominant food delivery players, have come to embody the breakneck growth of Indian tech start-ups. Both have used heavy discounts to expand into hundreds of cities, and orders were turbocharged during the Covid-19 pandemic, as lockdowns confined Indians to their homes. Nonetheless, Zomato reported a net loss of $100m in the year to March.

Zomato and Paytm could be joined in the public markets by Flipkart, an ecommerce group that is backed by US retailer Walmart and competes with Amazon in India, after it raised $3.6bn this month, giving it a $38bn valuation. Insurance aggregator Policybazaar, beauty retailer Nykaa and logistics company Delhivery have all indicated that they will list soon.

“India’s tech IPO boom has been long-awaited — there are some world-class businesses in the pipeline,” said Udhay Furtado, co-head of Asian equity capital markets at Citigroup. “There is clearly a global appetite . . . we are seeing investors from all corners of the globe including several who have not been active in the local Indian market before.”

Column chart of IPO proceeds in first half of each year ($bn) showing India listings are set for their biggest year since 2008

Zomato’s IPO is expected to give it a valuation of $8bn, while Paytm’s mooted $25bn market capitalisation would place it among India’s top 25 biggest companies.

Losses at both companies have not deterred investors, said Neha Singh, founder of data provider Tracxn in Bangalore. “In India, the expectation was that you become profitable and then you do the listing. That’s changed,” said Singh. “Markets are at an all-time high, so people want to take advantage.”

The listings coincide with a broader rush by Indian companies to tap public markets even as the economy suffers after a brutal second wave of coronavirus. The 37 businesses that listed in India in the first half of 2021 raised $3.9bn, according to Refinitiv data, the most since the global financial crisis. The benchmark Nifty 50 index has risen 13 per cent this year to a record.

For Zomato, investors hope the company will prove to be India’s answer to Meituan, China’s largest food delivery platform that turned profitable in 2019. Paytm has billed itself as a superapp with the potential to become India’s Alipay, Ant Group’s online supermarket of financial offerings.

Like its peers, Zomato has sucked up market share in India’s vast informal economy as lockdowns pushed more business online. But analysts question whether the boom will last.

Jefferies said it was a “critical investor concern” whether food delivery in India could be sustainably profitable in the long run, given that order values remain well below those in China or the US. “While there are a lot of questions on the minds of investors . . . the FOMO factor should keep the excitement level high,” the investment bank wrote.

Like in China, regulatory uncertainty is a risk in India as the government introduces legislation designed to give it more control over the data of its 1.4bn people.

“India’s regulators have had somewhat fickle views of the role of tech in the financial industry especially when dealing with foreign players,” said Zennon Kapron, director at Kapronasia, a regional fintech consultancy.

For Zomato and other start-ups about to hit the market, they will be hoping investors give them the benefit of the doubt.

“Zomato is the first one off the block, so it has to do well,” said Samir Arora, founder of Helios Capital, an investment group. “Zomato is a unique thing and Indians like unique things in the market,” he added. “It’s lossmaking, but it’s not obscene.”

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Robinhood seeks valuation of up to $35bn in IPO




Robinhood updates

Online brokerage Robinhood is seeking a valuation of up to $35bn in its initial public offering, one of the most hotly anticipated stock listings of the year.

Robinhood is offering about 55m shares of its class A common stock at between $38 and $42 as it seeks to raise more than $2.3bn, the company said in a filing with the US Securities and Exchange Commission on Monday. The founders and chief financial officer are offering about 2.6m of the shares.

Thirty-five per cent of the company’s IPO shares will be available to retail traders, the company said. Robinhood plans to list its stock on the Nasdaq under the symbol “HOOD”.

Robinhood had been targeting a valuation of at least $40bn in the IPO, the Financial Times previously reported.

Goldman Sachs, JPMorgan Chase and Citigroup are among the banks underwriting the deal.

The Bay Area-based broker became synonymous with the recent surge of retail investing by day traders. Its registered users have doubled since the start of 2021 to 31m.

Robinhood’s total revenue grew 245 per cent in 2020 from a year ago to $959m. It also reported net income of $7m, compared with a net loss of $107m in 2019, according to the SEC filing. The company estimated it had 22.5m funded accounts, which are tied to bank accounts, as of the end of June, up from 18m at the end of the first quarter.

Robinhood’s mission to “democratise finance for all”, with no commission fees and an easy-to-use interface, has drawn a new demographic of young investors into markets. The median age of users is 31, younger than those at rival US brokers such as Charles Schwab or TD Ameritrade. The company says more than half of its customers are first-time investors.

Robinhood, which offers both equity, derivative and cryptocurrency trading, has also come under scrutiny by lawmakers and regulators as its popularity has grown. It has been criticised for practices such as “payment for order flow”, from which Robinhood derives the bulk of its revenue, and gamifying investing into a “casino”-like experience.

In late June, the US Financial Industry Regulatory Authority levied a $70m penalty against Robinhood for causing what it described as “widespread and significant harm” to customers.

The IPO valuation is of particular importance to investors who bought convertible notes issued in February, when Robinhood raised emergency funds to meet its obligations to clearing houses during the height of the GameStop trading mania.

These notes will convert into equity at a discount of at least 30 per cent to the offer price. For the most senior debtholders, the conversion is capped at a valuation of roughly $30bn.

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Pershing/UMG: Dance to the music of time




Bill Ackman updates

Hold off the requiem. Regulators may have forced Bill Ackman to scrap plans to acquire 10 per cent of Universal Music Group via his Spac, but the deal lives on. Rather than investors in Pershing Square Tontine Holdings receiving UMG shares, plus an extra $1.6bn cash left to spend, and warrants, shares in the record label will go into Ackman’s Pershing Square hedge fund.

The original deal had kerbside appeal. Unlike many other Spac deals, there was no dilution from free founders’ shares. It gave those investors access to a resurgent music label on a slightly cheaper multiple than rival Warner Music. Vivendi, UMG’s current owner, plans to list the shares in September so buying in via Ackman’s Spac would have given investors a cut-price backstage pass.

True, an implied enterprise value of €35bn exceeded the €30bn accorded to a similarly sized acquisition by a consortium led by Chinese tech giant Tencent just six months earlier. But it was comfortably shy of the €40bn or so pencilled in by optimistic brokerage analysts. JPMorgan, unsurprisingly home to Ackman’s favourite analyst, put the figure as high as €50bn. On those numbers — $20.20 per share, a shade below PSTH’s current share price — the RemainCo cash and warrants would come cheaply.

Buying Vivendi, which plans to disburse shares of UMG on Amsterdam Euronext via a special distribution, means rump assets have an uncertain value. Citi analysts put this above €14 a share. UMG distributed as a dividend in kind also attracts withholding tax liabilities, to which some minorities, such as Bluebell, have objected. It has moaned about any previous tax advantages accorded to Ackman’s Spac purchase.

Pershing says it plans to remain a shareholder in UMG for the long haul. For a music industry that has cycled through myriad different musical genres and business models, this sounds bold. UMG has been the home of music idols from The Beatles to Lady Gaga and Taylor Swift. A groundbreaking Spac, it appears, was one revolution too much for regulators.

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