TOKYO (Reuters) - Japan's Suntory Beverage and Food Ltd will raise 388 billion yen ($4 billion) after it set its IPO price near the bottom of its marketing range, hurt by concerns about its valuation and weak appetite amid market volatility.
The food and soft drinks unit of Suntory Holdings Ltd set the price of its initial public offering at 3,100 yen per share, compared with its 3,000-3,800 yen indicative range, it said in a regulatory filing on Monday.
The maker of Boss canned coffee had been seeking as much as 470 billion yen in Asia's biggest IPO so far this year, to bolster its war chest for acquisitions in emerging markets like Southeast Asia and boost its competitiveness against rivals like Kirin Holdings Co Ltd (2503.T).
"It's obviously a sign that the stock is not popular among institutional investors," said a hedge fund manager based in Singapore, who was not authorized to discuss the matter publicly.
"Given its valuation compared with its peers and high volatility in the market, I think even the price of 3,100 yen is too high for many institutional investors," he said.
The IPO price values Suntory Beverage at a price-to-earnings ratio of 23 based on its 2013 profit forecast. That is higher than 17 at domestic rival Asahi Group Holdings (2502.T) and 16 at Kirin, according to Thomson Reuters data.
At the IPO price, Suntory Beverage would have a market capitalization of 958 billion yen, behind Kirin's 1.5 trillion yen and Asahi's 1.2 trillion yen.
Suntory Beverage's IPO was also seen as a test of investor appetite for new listings at a time of high volatility in Japanese stock markets. The benchmark Nikkei .N225 has lost about 18 percent since hitting a 5-1/2 year high in late May.
Still, the offering is almost twice the size of the $2.1 billion IPO by the infrastructure fund of Thailand's BTS Group Holdings Pcl (BTS.BK), the second-biggest Asia IPO this year, and provides Suntory with the funds to ramp up its acquisition drive.
Privately held Suntory Holdings is led by President Nobutada Saji, the 67-year-old grandson of the company's founder. The group, which is known for its Premium Malt's beer and whisky, gets half of its revenue from non-alcoholic drinks unit Suntory Beverage.
Suntory Beverage said it expects its net profit to rise 50 percent to 35 billion yen and its revenue to increase 14 percent to 1.13 trillion yen this year. It has set a target for annual revenue growth of at least 5 percent over the next three years.
In Japan, Suntory is the second-largest soft drinks maker after Coca-Cola Co (KO.N) and the gap in their market share has been narrowing. "In terms of domestic share, Coca-Cola is 27.9 percent and Suntory 19.6 percent. The gap used to be much bigger," said Kazuhiro Miyashita, editor of a trade magazine.
Still, Suntory and its rivals see little room for growth in their saturated home market and have set their sights overseas in recent years.
Suntory acquired soft drinks maker Orangina Schweppes and New Zealand's No. 2 beverage firm Funcor Group, both in 2009. In 2011, it entered into a joint venture with Indonesian food and beverage group GarudaFood. Suntory has said that it is also eyeing the Middle East, Africa and Latin America through acquisitions.
But industry officials and analysts say that acquisitions, especially in Southeast Asia, are increasingly costly and difficult to execute.
Such concerns came to light earlier this year when Kirin lost the chance to buy Singapore-listed Fraser and Neave Ltd's (F&N) (FRNM.SI) food and beverage business after Thailand's TCC Assets Ltd and Thai Beverage PCL (TBEV.SI) successfully acquired the control of F&N.
Kirin sold its 15 percent stake in F&N to TCC Assets after a Thai beer baron won a two-month bidding war with an Indonesian group, a major setback for the Japanese company to gain quick access to the market.
"There are a host of enthusiastic buyers, and sellers tend to be bullish," Masaaki Kitami, an analyst at Merrill Lynch Japan Securities Co, said of the intensifying competition for beverage-company acquisitions in that region. ($1 = 97.4750 Japanese yen)
Additional reporting by Emi Emoto and Nathan Layne; Editing by Chris Gallagher