Rakuten Bank Ltd.'s Shares Surge 38% in Tokyo Debut, Marking Japan's Largest IPO Since 2018

Rakuten Bank Ltd. experienced a remarkable debut in Tokyo, with shares surging 38% on Friday, making it the largest initial public offering (IPO) in Japan since 2018. The banking subsidiary of Hiroshi Mikitani's Rakuten Group Inc. raised approximately 83.3 billion yen ($623 million) by selling shares priced at 1,400 yen each, the top of the previously lowered target range. The listing supports Rakuten Group's plan to expand its financial business, as competition from Amazon.com Inc. has limited its core e-commerce revenues, and the struggling mobile unit has incurred losses due to aggressive promotions.

The IPO saw Rakuten Bank's share price jump as much as 40% on its market debut, signaling strong demand for Japan's biggest online lender. Initially, the bank set an indicative price range of 1,630 to 1,960 yen for the shares, which was later reduced to 1,300-1,400 yen, indicating weaker than expected demand. Rakuten Group offered up to 84% of the available shares in the IPO and will maintain a stake of approximately 63% in the banking unit after the listing, as per the deal's terms.

The stock closed at 1,930 yen on the Tokyo Stock Exchange, compared to the IPO price of 1,400 yen. In the first hour of trading, the stock remained untraded due to a surge of buy orders, later peaking at 1,965 yen, surpassing the highest proposed IPO price before the deal was downsized. Despite concerns about the banking sector and its exposure to the money-losing Rakuten Group, Rakuten Bank's IPO emerged as Japan's biggest in over four years.

The share sale provides a much-needed financial boost for parent company Rakuten, which has faced four years of losses resulting from the costly expansion and subsequent struggle of its mobile phone network. Bank CEO Hiroyuki Nagai announced at a news conference that the lender has no need to sell any more new shares until at least March 2027, when its mid-term business plan concludes. The bank also has no plans to pay dividends in the short term, though it will review the policy in a few years.

Rakuten Bank's listing has rejuvenated the IPO market in Tokyo, where no other first-time share sale had surpassed 50 billion yen this year. The lender and its holder marketed shares during a period of high volatility for global banking stocks, following the failures of several US banks and turmoil at Credit Suisse AG. Nonetheless, this marks the largest debut in Japan since SoftBank Corp.'s $20 billion-plus IPO in December 2018.

CEO Hiroyuki Nagai stated during a news conference on Friday that he does not foresee an immediate need for a public share sale through the end of March 2027. Data compiled by Bloomberg reveals that forty-two companies raising more than 50 billion yen in IPOs in Japan during the ten years leading up to Friday experienced an average increase of 7.3% in their first session.

Online lender SBI Sumishin Net Bank Ltd., which had its IPO in March, could provide insight into the appetite for banking shares ahead of Rakuten's debut. The competitor's shares have risen 38% since its debut on March 29. Travis Lundy, an analyst on the Smartkarma platform, stated that Rakuten Bank's IPO price was "cheap" considering its return on equity and that "it still has possibilities for more growth going forward," though growth rates in deposits, assets, and customers may not be as rapid as in previous years.

At Friday's closing price, the lender was valued at around 328 billion yen ($2.45 billion). Rakuten Bank sold 53.95