Business

Japan to raise US$10b through Japan Tobacco share sale

February 25, 2013

A Japanese woman in a kimono holds a cigarette after a ceremony at a Tokyo event in this file photo. The Japanese government will sell about a third of its Japan Tobacco Inc stake to raise US$10.4b for reconstruction. – Reuters picA Japanese woman in a kimono holds a cigarette after a ceremony at a Tokyo event in this file photo. The Japanese government will sell about a third of its Japan Tobacco Inc stake to raise US$10.4b for reconstruction. – Reuters picTOKYO, Feb 25 – Japan’s government will sell around a third of its stake in Japan Tobacco Inc, the world’s No.3 tobacco company, to raise about US$10.4 billion (RM32.22 billion) for reconstruction of areas devastated by a 2011 earthquake and tsunami.

The Ministry of Finance, which owns just over 50 per cent of the US$62 billion former state monopoly, is selling 333 million shares, according to a regulatory filing today, with the deal to be priced between March 11-13.

The offering, the largest such deal since the US Treasury’s US$20.7 billion sale of American International Group Inc shares in September, comes as Japanese equities scale their highest levels in more than four years.

Japan’s parliament in 2011 passed a set of bills including tax hikes and government share sales in state-owned companies to help finance the roughly US$270 billion it expects to spend to rebuild the northeast coast after the quake in March that year.

Conditions for a sell-down in the government’s stake in Japan Tobacco have improved in recent months, with the benchmark Nikkei share average hitting a 53-month high on Monday. A broad market rally began in mid-November after the calling of an early election that put Prime Minister Shinzo Abe in power a month later. Abe has promised aggressive monetary and fiscal policies to tackle prolonged deflation.

Prior to the stake sale, Japan Tobacco will buy back as much as 250 billion yen (US$2.7 billion) worth of its own shares, today’s filing showed.

GROWTH PROSPECTS

Shares in Japan Tobacco have outperformed rival Philip Morris International Inc and British American Tobacco Plc since the bill approving the sell-down was approved in 2011, Thomson Reuters data shows, with investors welcoming reduced state control.

“We see ample room for JT to increase their share buybacks and dividends going forward as they have no net debt,” Oscar Veldhuijzen, a London-based fund manager with The Children’s Investment Fund Management (UK) LLP and a holder of Japan Tobacco stock, said before today’s filing.

“JT has the best growth prospects amongst the three major tobacco companies, as two-thirds of their profits come from Japan and Russia, where tobacco prices remain far below other countries on a PPP (purchasing price parity) basis.”

Shares in Japan Tobacco closed today at 2,901 yen, up 1.4 per cent on the day. At that price, the share sale would be valued at about 967 billion yen.

Japanese law requires the government to hold at least one-third of Japan Tobacco’s two billion shares outstanding.

Japan’s large and liquid stock market is used to digesting big offerings, such as the US$8.5 billion IPO of Japan Airlines Co Ltd in September and a US$2.3 billion follow-on deal by All Nippon Airways Co.

Last month, US private equity firm Cerberus Capital Management LP raised about US$1.7 billion by selling shares in Japan’s Aozora Bank Ltd.

Overall, equity issuance in Japan rose 16.8 per cent last year to US$26.4 billion, driven by large IPOs and a flurry of activity that made 2012 the busiest year for deals since 2008, Thomson Reuters data showed.

The ministry last June selected JPMorgan Chase & Co, Daiwa Securities Group Inc, Goldman Sachs Group Inc and Mizuho Securities as underwriters for the Japan Tobacco offering.

Japan also plans to sell shares of Japan Post Holdings Co, which runs the nation’s biggest savings institution, to raise money for post-quake reconstruction. – Reuters

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