What's going on?

Shares of the mobile telecoms subsidiary of Japan�s SoftBank fell 15% on Wednesday, their first day of trading following an initial public offering. It still netted $23 billion, though… (tweet this)

What does this mean?

Companies usually outline a target price range when �going public� in order to provide flexibility to investors who might buy the shares. They then work out a single initial share price based on who wants what, and at what price. But not SoftBank: in November it announced that it�d sell shares in its telecoms unit at a fixed price of its own devising, defying convention. Although investors agreed to pay up on Wednesday, some made an abrupt about-turn, dumping the shares and pushing their price down in the Japanese stock market equivalent of getting a wedgie on the first day of school.

Why should I care?

For markets: Investors may have seen better returns elsewhere.

The newly listed business�s cash flows are pretty predictable (thanks to long-term phone contracts), potentially making it attractive to investors seeking regular dividends. It�s promising to pay out 85% of its annual profit to investors � initially offering each shareholder a 5% “yield” (i.e. if you owned the stock, you�d get your money back in full from 20 years of dividends). But those returns might�ve seemed less attractive to investors who correctly guessed that the US Federal Reserve would announce higher interest rates later on Wednesday. This makes returns on forthcoming bonds (and cash) a little more competitive compared to stocks � potentially vindicating those who sold SoftBank�s stock earlier in the day.


The bigger picture: Pricing for perfection.

SoftBank sold 90% of the shares to individual investors, as opposed to the large investment companies who gobble up (and trade) most new stocks. A potential downside, though, is a subsequent lack of �liquidity� � i.e. less buying and selling action. If there are a couple of big sellers but no big buyers willing to stump up, then that can exacerbate a stock�s decline.