Suntory Holdings Ltd received approval to list its core food and non-alcoholic beverage unit in Tokyo, paving the way for Asia's largest initial public offering this year worth $4.4 billion.
Suntory is raising funds in part for foreign acquisitions, undeterred by a weakening yen as it competes with rivals Kirin Holdings Co Ltd (2503.T) and Asahi Group Holdings Ltd (2502.T) on deals abroad while consumer demand stagnates in Japan.
A rally in domestic shares has boosted the attraction of share issues but the offer's success will also depend on Suntory presenting a compelling expansion plan overseas, where it has said it will focus on Southeast Asia.
"Domestic beverage demand is saturated. Whether Suntory will be attractive in the beverage industry compared with Asahi and Kirin will depend on its overseas strategy," said Makoto Kikuchi, chief executive of Myojo Asset Management.
"Just because the IPO is big doesn't mean people will buy."
The Tokyo Stock Exchange said on Wednesday it had set July 3 for the listing of Suntory Beverage and Food Ltd, which will be Japan's third-largest beverage-focused company by market capitalisation and accounts for just over half of Suntory Holdings' revenue.
Suntory Beverage said it expects to raise 353 billion yen ($3.5 billion) by issuing new shares, while its parent company will offer an additional 98.8 billon yen worth of existing shares in the unit. Nearly 40 percent of the unit's outstanding shares will be on offer.
Suntory Beverage's market debut would top the $2.1 billion IPO of an infrastructure fund of Thailand's BTS Group Holdings Pcl (BTS.BK) as the largest initial offering of shares in Asia so far this year.
The Osaka-based drinks maker said it plans to use proceeds from the IPO to pay back bank debts for past acquisitions as well as to make strategic investments at home and abroad.
It follows a strong rally in the Japanese stock market, where the benchmark Nikkei average .N225 is up more than one-third since the start of 2013 even after a sharp pullback last week.
Suntory, which makes C.C. Lemon brand soft drinks and Yamazaki single malt whisky, has set a goal of more than doubling sales at its food and beverage unit to 2 trillion yen by 2020.
It has acquired soft drinks maker Orangina Schweppes and New Zealand's No. 2 beverage firm Funcor Group. In 2011, it entered into a joint venture with Indonesian food and beverage group GarudaFood.
Japanese companies spent a record $84.6 billion on overseas acquisitions last year as a strong yen boosted their purchasing power. While aggressive monetary expansion to spur the domestic economy has deflated the yen, which has dropped by about one-quarter against the dollar over the past six months, Japan Inc's appetite for overseas assets is expected to remain intact given limited scope for growth in the domestic market and surging stock prices, which would facilitate equity-linked deals.
Based on the company's estimated issue price of 3,800 yen per share, Suntory Beverage's market capital would be 1.17 trillion yen, compared with Kirin Holdings' 1.7 trillion yen and Asahi Group Holdings' 1.22 trillion yen.
Suntory is one of Japan's largest firms that remains privately held, along with zipper manufacturer YKK Corp and Japan's largest recruiting firm Recruit Co, which plans to list within the next few years to promote expansion overseas.
In February 2010, Suntory terminated merger talks with Kirin to create one of the world's biggest food and beverage companies as they sought ways to cope with the dull domestic market. Suntory President Nobutada Saji said at that time that a share listing was one option to finance its growth plans.
Nomura Holdings Inc (8604.T), Morgan Stanley MUFG Securities and JP Morgan Chase & Co (JPM.N) are joint global coordinators for the Suntory Beverage IPO.
($1 = 102.3500 Japanese yen)
(Additional reporting by Ayai Tomisawa in Tokyo, Elzio Barreto in Hong Kong; Editing by Kevin Krolicki and Edmund Klamann)