Bloomberg News

Japan’s Ruling Party Proposes Selling Stake in Japan Tobacco

September 28, 2011

(Updates with closing share price in second paragraph.)

Sept. 28 (Bloomberg) -- Japan’s ruling party proposed selling the government’s majority stake in Japan Tobacco Inc., the world’s third-biggest publicly traded cigarette maker, to help fund rebuilding after the March 11 earthquake.

Japan Tobacco fell 1.8 percent, the most since Sept. 5, to 356,500 yen at the 3 p.m. close in Tokyo. The shares earlier today gained as much as 9.2 percent. The broader Topix index rose 0.7 percent.

The government may raise 1.8 trillion yen ($24 billion) by selling its 50.01 percent stake in Japan Tobacco at the stock’s current price. A sale may help Japan Tobacco operate with fewer constraints as the government looks to impose more taxes, including on cigarettes, to fund recovery from the March 11 earthquake and tsunami and the nuclear disaster that followed.

“The company will have freedom to manage itself,” said Mikihiko Yamato, a research partner at Japan Invest KK. “If the market turns around and moves the shares up, the government may sell its stake earlier than the original plan.”

The government raised tobacco taxes 40 percent in October 2010, and Japanese Health Minister Yoko Komiyama said Sept. 20 that tobacco taxes should go up again until the average price of a pack of cigarettes is about 700 yen, or 75 percent higher than the current level, to cut medical costs. The Democratic Party of Japan also proposed a 9.2 trillion yen overall tax increase yesterday.

Share-Price Gain

The maker of Mild Seven and Camel cigarettes has gained 19 percent this year in Tokyo trading, compared with a 16 percent decline for the Topix index. Yesterday was the last day investors could buy shares that would be eligible for Japan Tobacco’s next dividend payment of 4,000 yen, Hideyuki Yamamoto, a spokesman for Japan Tobacco, said in an e-mail today.

“We are hoping Japan Tobacco will be fully privatized, which has been the government’s policy,” Yamamoto said in a separate phone call, declining to comment further. Yamamoto had said earlier this month that Japan Tobacco was “seriously considering” buying back some shares if the government were to sell.

Japan plans to spend 19 trillion yen over the next five years to rebuild after the record temblor and tsunami devastated the northeast and prompted world’s worst nuclear disaster in 25 years. While the government has already approved two packages totaling about 6 trillion yen, the economy has shrunk for three straight quarters.

Pressure to raise money now may have pushed the government to propose selling more of its stake faster than planned, Yoshifumi Kikuchi, head of dealing at Nissan Century Securities Co., said today by phone. To sell, the government will need to rewrite a law that requires it to hold at least half of the tobacco company.

“I didn’t expect the government to sell its entire stake,” Kikuchi said. “It’s possible the government will sell its stake much earlier than planned since the country’s finances are tight.”

--With assistance from Nicholas Wadhams in Beijing. Editors: Nicholas Wadhams, Frank Longid

To contact the reporters on this story: Shunichi Ozasa in Tokyo at sozasa@bloomberg.net; Miyuki Seguchi in Tokyo at mseguchi@bloomberg.net

To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net


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