+The Japanese government plans to sell its entire stake in Japan Tobacco and other firms to raise Y2,000bn ($26.2bn) to pay for the reconstruction of Tohoku which was devastated by the March earthquake.
The ruling Democratic party took the surprise decision – which would represent Japan’s biggest privatisation in years – to ease the tax burden on citizens.
It would aim to reduce its 50 per cent stake in JT down to a third within the next five years according to Seiji Maehara, DPJ policy chief. It aims to sell the remainder within ten years
Following a string of large privatisations in the 1990s, the sale of government shares has slowed in recent years, although this year, the finance ministry sold Y223bn worth of shares in NTT back to the telecoms operator.
Taxpayers had been asked to pay an additional Y11,200bn towards the estimated Y19,000bn cost of rebuilding Tohoku over five years. But opposition to the tax increase both from within the DPJ and the major opposition parties forced the government to find other revenue sources.
The DPJ estimates that the privatisation plan, which requires Diet approval, will reduce the extra tax burden to Y9,200bn.
The strong opposition to the original tax increase was partly due to concerns that the added burden would undermine consumption and further depress the economy.
Japan’s economy shrank by more than initially estimated in the three months to June, with gross domestic product falling 2.1 per cent on an annualised basis compared with a projected 1.3 per cent.
“If taxes are raised in this uncertain environment, there will definitely be an impact on the economy,” said Masaaki Kanno, chief economist at JPMorgan in Tokyo.
The Japanese government, whose stake in JT is worth an estimated Y1,700bn, plans to sell its stakes in Inpex, an oil company, and Japex, an oil exploration and production company. Those stakes are worth a combined Y566bn.
The JT sale will be welcomed by international investors, who have long argued that the company should buy back its shares from the government to raise its earnings per share and boost its share price.
The Children’s Investment Fund, the activist fund, has written twice to the finance ministry urging the government to use its role as JT’s largest shareholder to encourage the company to raise its dividend and buy back its shares.
“It’s in the public interest. This could be an example of [better corporate governance] and attract foreign investors back into Japan,” said Oscar Veldhuijzen, TCI partner.
The government is likely to face opposition to its plan from politicians close to tobacco leaf farmers, who want JT to continue to be required by law to buy the entire domestic tobacco leaf crop, at significantly higher prices than in international markets.
Although there are only about 10,000 tobacco leaf farmers, they have been able to wield significant influence over the debate on a government sale of JT shares.
Before a final decision is reached, “I think there will be one or two more turbulent moments,” Mr Kanno said.
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