US-China tensions put Kioxia’s $3.2bn IPO on ice

Kioxia Holdings, the chip unit bought by Bain Capital in 2018 and 40 per cent owned by Toshiba, has postponed Japan’s biggest initial public offering of the year as tensions between Washington and Beijing send shockwaves through the global tech sector.

Kioxia, the world’s second-largest producer of NAND flash memory chips, was due to reveal pricing for its $3.2bn listing on Monday. It instead made a last-minute decision to shelve it for now, triggering a sell-off in Toshiba shares, which briefly dropped as much s 8.6 per cent.

The planned IPO was on course to be Japan’s largest of 2020, and represented the culmination of one of the country’s most tormented corporate stories of recent years.

But the worsening dispute over technology between the US and China has dented investor demand and increased uncertainty, prompting the company to rethink its plans, according to two people with direct knowledge of the matter. 

In a statement, Nobuo Hayasaka, Kioxia’s chief executive, blamed the delay on “continued market volatility and ongoing concerns about a second wave of the pandemic”. 

“We will revisit an IPO at an appropriate time. We are not in a rush,” Mr Hayasaka said on Monday.

The decision comes after the US government implemented sanctions against Semiconductor Manufacturing International Corporation, China’s biggest chipmaker, after cutting Huawei off from its chip suppliers.

Two other people familiar with preparations for the IPO said the past few weeks had generated increasing doubts over how aggressively Bain, the US private equity group that led the buyout of Kioxia from Toshiba, would be able to price the offering.

In the past month, Toshiba shares have declined 15 per cent on concerns surrounding US sanctions against Chinese tech groups and their potential impact on both the memory chip business in general and on the Kioxia IPO in particular.

The tightened US restrictions against Huawei already affect most or all of Kioxia’s chip sales to the Chinese telecoms group, and China is one of its core markets, generating 20 per cent of its annual revenue. In its listing documents, Kioxia had warned investors that a deepening of the US-China dispute would have a “serious impact” on its earnings. 

In virtual road shows, institutional investors outside Japan had already expressed concerns over the darkening geopolitical clouds over the chip industry. The mixed response led Kioxia to announce on September 17 an indicative price range of between ¥2,800 ($26) and ¥3,500 a share — lower than the ¥3,960 originally hoped for by Bain. 

At the top of the range, the company was expected to raise ¥334.3bn in shares with a market value of ¥1.89tn. 

People close to Bain, however, said the US private equity group had played down the geopolitical concerns and until last week had remained optimistic that the IPO would price at the higher end of its range. 

Potential investors who discussed the IPO with Kioxia’s underwriters said they understood that the book was only covered at the bottom of its range, and shares in Toshiba had already fallen sharply in anticipation a weak listing. The Japanese industrial conglomerate had said it would return a majority of its proceeds from the Kioxia IPO to its shareholders.

In 2017, Toshiba was pushed to the brink of financial ruin by the failure of its US nuclear business, after previously suffering heavy reputational damage from an accounting scandal.

In an effort to shore up its finances, Toshiba opted to sell its memory chip business — the one part of the conglomerate that investors judged to offer exciting long-term growth prospects.

Despite government efforts in Tokyo to assemble an “all Japan” consortium to buy Toshiba Memory, the business was sold to a consortium led by Bain for $18bn in 2018.

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