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Japan listings get bullish sign as Recruit sets IPO price

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[October 06, 2014]  By Ritsuko Ando

TOKYO (Reuters) - Japan's largest recruitment company Recruit Holdings Co Ltd priced its $2 billion initial public offering at 3,100 yen, the top of its bookbuilding range, raising expectations of strong demand that could break a run of flops among big Tokyo listings.

The range of 2,800 to 3,100 yen, set last week, had already suggested a more bullish stance than the initial indicative price of 2,800 yen for Japan's second-biggest listing of the year.

Investors see the company's Oct. 16 listing, which will help Recruit to pay for future acquisitions as it expands overseas, as a test of the market's appetite for new offerings after several high-profile disappointments.

Some of those have reflected company-specific reasons, with Japan Display Inc's <6740.T> shares skidding 43 percent from their IPO price as investors fret about falling smartphone screen prices and its ability to compete with Asian rivals.

Investors also sold off Tokyo shares early in the year as euphoria faded over Prime Minister Shinzo Abe's expansionary economic policies. The benchmark Nikkei average <.N225> has rebounded 10 percent since Japan Display's debut and analysts said Recruit may benefit from the stronger sentiment as well as solid fundamentals.

Recruit, one of the world's top five staffing firms, is aiming to become the world's biggest by 2020. In 2013, it reported revenue of 1.2 trillion yen ($10.96 billion).

While the offering price puts its forward price/earnings ratio at 25.5 times, slightly higher than a multiple of about 12 for Swiss rival Adecco SA <ADEN.VX>, its EBITDA margin is also higher at 15 percent compared with Adecco's 5 percent.

In recent years, Recruit has aggressively acquired overseas firms, seeking to offset a shrinking market in Japan where the population is rapidly aging. It has acquired U.S. staffing service CSI, Advantage Resourcing and Staffmark Holdings as well as Indeed.com.


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"It's got brand recognition and it appears to have attracted interest from individuals as well," said one Japanese institutional investor who declined to be named because he was not authorized to speak to the media.

"It may not have too much growth potential but if you consider the favorable market environment, a PE ratio around 25 is an appropriate level."

Including an overallotment, the offering is worth 213.82 billion yen ($1.95 billion) and values the company at 1.78 trillion yen. Roughly half of the proceeds are due to go to the company, which will issue new shares and sell treasury stock. The rest of the funds will go to existing shareholders.

Joint global coordinators for the offering are Nomura Securities, Morgan Stanley MUFG, Mizuho Securities and SMBC Nikko Securities.

(Additional reporting by Hirotoshi Sugiyama; Editing by Edmund Klamann)

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