IPO investors look beyond Line’s cuddly bears, flatulent bunnies

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Emojis of a cuddly brown bear and his flatulent rabbit girlfriend Cony are met with investor scepticism as the company behind Line, the popular Japanese messaging app, prepares to kick off what’s touted to be the world’s biggest IPO this year.

Line Corp [IPO-LINE.T] will likely raise between $2 billion and $3 billion in a dual Tokyo-New York listing set for July, two people familiar with the matter told Reuters on Wednesday.

But the Tokyo-headquartered company has missed a trick by delaying the IPO until now, said some fund managers, pointing to Line’s diminishing growth prospects in a Japanese market crowded with messaging platforms.

In 2014, South Korea’s Naver Corp, Line’s parent, said a dual initial public offering would raise up to 2 trillion yen ($18 billion), predicting it would give Line worldwide recognition and improve its access to venture capital. But Line put that plan on ice last August, with its CEO saying the company would wait until its earnings and market conditions improve.

“Line itself is already a pretty big company,” said Mitsushige Akino, executive officer at Ichiyoshi Asset Management, which manages assets worth 140 billion yen ($1.3 billion). “Depending on its future strategy, it’s hard to anticipate the fast pace of growth that it’s had until now.”

Asked about the timing of the IPO, Tokyo-based Line spokeswoman Icho Saito said the information was from third-party sources and she was therefore unable to comment. The company had not yet made any official announcements, she added.

A Naver spokesperson declined to comment, as IPO details were not finalised.

With 68 million users, Line’s eponymous free-of-charge messaging app is the most popular in Japan. The company makes money from selling electronic stickers, or emojis, as well as tokens for use in in-app games. It also charges for services like music streaming.

But in a domestic market beset by weak growth and a shrinking population, Line has hunted overseas for new markets. Despite establishing itself as the top messaging app by number of users in Taiwan and Thailand, Line has been unable to break into the global premier league of messaging apps dominated by the likes of WhatsApp and Facebook Messenger.

SHOW ON THE ROAD

Line will launch a management roadshow for its IPO on June 10, with orders from institutional investors expected in the week of June 13, a person involved in the deal said. The IPO is set to be priced either the same week or early the following week, a separate person briefed on the matter said.

But other details of the listing remained unclear, notably whether or not Naver would sell its entire stake in the company, or whether new shares would be issued.

Regardless of the structure of the listing, the total amount could be smaller than that expected possible two years ago.

“The timing’s bad,” said Hiroyuki Nakai, chief strategist at Tokai Tokyo Research Center. “It would have been better to list when it was growing. They procrastinated and procrastinated, delayed and delayed, and in that time the market has become saturated.”

The decision to proceed with the IPO follows shortly after Japan’s regulators last month found that Line had broken rules over the use of a type of token in a popular online game.

Naver, South Korea’s largest web portal operator, owns 100 percent of Line. The messaging app debuted in 2011 as NHN Japan, and changed its name to Line Corp in 2013. Line, operated separately from Naver, is the South Korean company’s biggest growth driver.

On Wednesday, Naver shares closed 4.6 percent lower, compared to a 0.7 percent drop in the wider market, as reported valuations for Line fell short of expectations, analysts in Seoul said.

Line’s IPO is set to be Japan’s largest since the $12 billion partial privatization of Japan Post and its banking and insurance divisions in November. The IPO, Japan’s biggest in nearly three decades, was well-received, with the listing wildly popular among individual investors and more than five times oversubscribed.

Line Corp has hired Morgan Stanley, Goldman Sachs, JPMorgan and Nomura to manage its IPO.

(Reporting by Thomas Wilson and Emi Emoto in TOKYO; Additional reporting by Robert Hartley at IFR in HONG KONG, Yoshiyuki Osada in TOKYO and Joyce Lee in SEOUL; Editing by Ryan Woo)