Japan Delays Sale of Japan Tobacco Stake

Source from:  Wall Street Journal‎  11/19/2012

The Japanese government is pushing back the sale of its stake in Japan Tobacco Inc., Finance Ministry officials said on Friday, citing weak market conditions and an uncertain political situation, as the effect of a sharp slowdown in the Japanese economy continues to spread.

The government wants to sell a portion of its holding in the tobacco giant at the highest possible price to fund part of the ¥19 trillion ($233.7 billion) cost of reconstruction programs for areas devastated by the March 2011 earthquake and tsunami.
 
But the recent sharp economic deterioration has depressed the stock market, making a near-term offering of the shares less attractive and increasing its potential negative impact on the overall market.
 
The officials said a decision has yet to be made on the eventual timing of the share sale, though the government wants to carry it out as soon as possible. Since most of the spending programs are already under way, the government cannot push back the share sale indefinitely, the officials acknowledged.
 
The depressed levels of the Tokyo stock market were cited as a reason for postponing the share sale.

The Nikkei stock average, which was hovering above 10000 in spring, began weakening in summer, and has been moving between 8500 and 9000 recently.
 
The officials said share prices are unlikely to rebound without an economic recovery that they hope will come next year. They added that the government wants to clear away as many uncertain factors for investors as possible before the share release, including such factors as next month's general election.
 
The Japanese economy posted a 3.5% decline in July-September, the steepest drop since the aftermath of last year's disaster, with many predicting another contraction in the October-December quarter.
 
The stake sale is expected to take the form of a government share offering to the public, combined with a JT share buyback aimed at cushioning the negative effect of the sale on the stock market.
 
The Japanese government, which currently holds a 50% stake in JT, plans to release 16.6% of the outstanding shares and allow its stake to drop to a third of the total. Based on JT's closing share price of ¥2,263 Friday, 16.6% of the company's shares would be worth about ¥751 billion.
 
The actual amount of the public offering would be around ¥500 billion after taking into account the size of JT's share buyback.

The company said in April it would consider a share buyback of up to ¥250 billion in preparation for the government's stake sale, but hasn't taken a formal decision to do so.
 
In June, the Finance Ministry selected Daiwa Securities, a unit of Daiwa Securities Group Inc. and Mizuho Securities, the brokerage unit of Mizuho Financial Group Inc. to underwrite the JT share sale in Japan.

The Japanese units of Goldman Sachs Group Inc. and JPMorgan Chase & Co. will handle JT's share offering to overseas investors.

JT was privatized in 1985 and the latest sale would mark the fourth time the government has offered JT shares. Enditem