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 Line's parent company, Naver Corp of South Korea, said on Wednesday
that Line had kicked off its listing process with a first
application for an initial public offering in Tokyo. The Line
messaging app has been downloaded 480 million times, with growth of
140 percent over the last year, making it one of the world's most
popular messaging services, albeit with comparatively low exposure
in the United States.
But banking sources say the listing will ultimately be either a dual
U.S.-Japan listing, or a listing only in the United States - and the
latter option matches Line's growth ambitions. Line is keen to
capture a global audience amid a land grab among messaging apps,
with WhatsApp bought by Facebook Inc in February for $19 billion and
Viber snapped up by Japanese online retailer Rakuten Inc.
"It makes sense to list only in New York. They are a global company
and get 85 percent of their business outside of Japan," said one
source at a foreign bank in Tokyo familiar with the company's
strategy.
"The potential downside of a dual listing is that you split the
liquidity into two exchanges ... You also have the cost to list in
two places and to maintain listings in two places."
Another banking source with knowledge of plans said Line would like
to list in its home country, still its most lucrative market and
familiar territory to its top executives. Yet its parent company
Naver is wary of the costs of a dual listing and favors New York's
higher volume and global profile.
The banking sources requested anonymity because they are not
authorized to speak publicly on the matter.
"It has not been decided whether Line will eventually go public,
which exchange it will be listed on and when it will be listed,"
Naver said in its filing. A spokeswoman for Line said in Tokyo that
it was exploring many possibilities and that nothing had been
decided yet.
Line's app recorded 14.6 billion yen ($145 million) in revenue in
January-March - a more than threefold increase on the year. The
app's full-year sales hit 34.3 billion yen last year, becoming the
highest-grossing non-game app of 2013, according to analytics firm
App Annie.
INAUSPICIOUS TIMING?
One of the banking sources told Reuters on Tuesday that Line had
applied for an IPO in Tokyo around two weeks ago, valuing the
company between 1 trillion and 2 trillion yen ($10 billion-20
billion). The source said Nomura Holdings Inc and Morgan Stanley
would manage the IPO.
The source at the foreign bank in Tokyo said Line would likely
launch the IPO in October and list in November. If the IPO were to
take place in Tokyo, its minimum value would be between 350 billion
and 700 billion yen ($3.44-6.88 billion), based on the Tokyo Stock
Exchange's requirement that at least 35 percent of a company's
shares must be floated to make the first section of the exchange.
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A New York-only listing would reinforce the city's appeal as a
financial center for new technology businesses. Alibaba Group
Holding Inc, China's e-commerce giant, eventually chose New York for
its massive IPO. While it initially preferred Hong Kong as the
venue, it changed tack as its shareholder structure did not pass
muster with regulators there.
Yet neither Tokyo nor New York looks particularly hospitable for a
Line listing at this time, however.
Some U.S. tech shares weakened on Tuesday after Federal Reserve
Chairman Janet Yellen said in congressional testimony that equity
valuations of social media and biotechnology firms appeared to be
stretched and high relative to historical norms.
In Japan, several large IPOs this year have been hit hard after
their listing, with panel maker Japan Display Inc, the largest so
far this year, dropping nearly one-third from its IPO price since it
listed in March.
For the U.S. element of its listing, Line has yet to decide between
the New York Stock Exchange and the tech-oriented Nasdaq exchange,
one of the banking sources said. Line only has a small presence in
the United States, where the app has been downloaded just 10 million
times and is likely to use funds raised in the IPO to expand its
audience there, analysts say.
"(The IPO) would provide Line with the resources and recognition it
needs to compete in the next level of chat wars," said Neha Dharia,
a senior analyst at technology research firm Ovum.
Naver's share price dropped 3.4 percent on Wednesday while Seoul's
benchmark Kospi index closed flat.
($1 = 101.5300 Japanese Yen)
(Additional reporting by Nathan Layne in TOKYO and Se Young Lee and
Joyce Lee in SEOUL; Editing by Tony Munroe, Edwina Gibbs and Kenneth
Maxwell)
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