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Tensions between the US and China froze Kioxia’s $ 3.2 billion IPO

Kioxia Holdings, the chip unit acquired by Bain Capital in 2018 and 40% owned by Toshiba, has postponed Japan’s largest initial public offering of the year as tensions between Washington and Beijing send shockwaves across the country. global technology sector.

Kioxia, the world’s second largest manufacturer of NAND flash memory chips, was expected to reveal prices for its $ 3.2 billion listing on Monday. Instead, it made a last-minute decision to shelve it for now, sparking a sell-off in Toshiba stock, which briefly fell 8.6% at the start of trading in Tokyo.

The planned IPO was to be Japan̵

7;s largest of 2020 and represented the culmination of one of the country’s most troubled business histories in recent years.

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

In a statement, Nobuo Hayasaka, chief executive of Kioxia, attributed the delay to “continued market volatility and continued concerns about a second wave of pandemic”.

“We will revisit an IPO at the appropriate time. We are in no hurry, ”Hayasaka said Monday.

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

Two other people familiar with IPO preparations said the past few weeks have generated growing doubts about how aggressively Bain, the US private equity group that led the takeover of Kioxia from Toshiba, would be able to evaluate the offer.

Over the past month, Toshiba shares have declined 15% on concerns about US sanctions against Chinese tech groups and their potential impact on both the memory chip business in general and Kioxia’s IPO in particular.

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

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

At the top of the range, the company was expected to raise 334.3 billion yen in shares with a market value of 1.89 trillion yen.

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

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

In 2017, Toshiba was pushed to the brink of financial ruin by the collapse of its nuclear business in the United States, after suffering heavy reputational damage due to an accounting scandal.

In an effort to bolster its finances, Toshiba decided to sell its memory chip business, the only part of the conglomerate that investors felt offered attractive long-term growth prospects.

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

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