By Ankur Banerjee

Kioxia’s Market Debut

SINGAPORE (Reuters) – Shares of Kioxia rose 6% in their market debut on Wednesday, valuing the Bain-backed chipmaker at more than 820 billion yen ($5.34 billion) and highlighting steady investor demand for the third biggest IPO in Japan this year.

Kioxia, a major manufacturer of memory chips, raised 120 billion yen after pricing its IPO in the middle of the indicative range at 1,455 yen per share. The stock opened at 1,440 yen, below the IPO price, before recovering to trade at 1,549 yen by 0152 GMT.

Previously known as Toshiba Memory, Kioxia was bought for 2 trillion yen in 2018 by a Bain-led consortium from Toshiba after a long and contentious battle. Toshiba sold the business after facing a crisis due to cost overruns at its nuclear division.

> "Market appears to have reacted well to the valuation discount being offered," said Jon Withaar, a manager at Pictet Asset Management.
>
> "There doesn’t appear to be any urgent selling. Today’s performance bodes well for future private equity exits in Japan providing valuation is reasonable."

Kioxia's debut follows a strong year for IPOs in Japan, witnessing significant IPOs from Tokyo Metro and Carlyle Group backed Rigaku. According to LSEG data, IPOs in Japan have raised over $6 billion so far in 2024, marking its best year since 2021, despite the number of IPOs being at their lowest in a decade.

The path to the IPO was challenging for Kioxia, which derives its name from the Japanese word kioku meaning "memory" and the Greek word axia meaning "value". The Bain consortium’s acquisition was a landmark move by private equity in Japan.

Uncertainty lingered post-sale as Bain postponed IPO plans two years later due to global chip market instability arising from Sino-U.S. tensions. Attempts to merge Kioxia with Western Digital stalled due to reservations from Japanese investor SK Hynix.

Bain Capital initially scrapped its IPO plans in October after investors pushed to significantly lower the sought 1.5 trillion yen valuation. Following the IPO, Bain’s stake in Kioxia will decrease to 50.7% from 56.2%. They opted to sell only a small portion of their shares due to the company's market value.

While going public could provide Kioxia with essential fundraising options in a capital-intensive industry, it also subjects the company to increased financial scrutiny. In the quarter ended Sept. 30, Kioxia reported a net income increase to 106 billion yen from 69.8 billion yen in the previous quarter, aided by an improved supply-demand balance.

However, some analysts express concerns about Kioxia's future in a competitive memory chip market, which may not align with the AI chip boom.

"The mooted valuation is 4-5 times price/sales, which may represent some scarcity value in Japan for semiconductor stocks but might be hard to justify otherwise," noted Richard Kaye, a Tokyo-based portfolio manager at Comgest.

> "I’m not terribly excited about Kioxia."

($1 = 153.6800 yen)