Tokyo may struggle to get a piece of a listing that could value Japan's social messaging service Line Corp at up to $20 billion, with bankers saying New York is a more likely venue as a base for global expansion to build on explosive growth at home.
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 favours New York's higher volume and global profile.
The banking sources requested anonymity because they are not authorised 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.
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.
A New York-only listing would reinforce the city's appeal as a financial centre 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 .KS11 closed flat.