Japan’s government is to sell about one-third of its stake in Japan Tobacco Inc, the world’s No. 3 tobacco company, to raise about US$10.4 billion for reconstruction of areas devastated by the 2011 earthquake and tsunami disaster.
The Japanese Ministry of Finance, which owns more than 50 percent of the US$62 billion former state monopoly, is selling 333 million shares, according to a regulatory filing yesterday, with the deal to be priced between March 11 and March 13.
The offering, the largest such deal since the US Department of the Treasury’s US$20.7 billion sale of American International Group Inc shares in September last year, 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 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 yesterday hitting a 53-month high.
A broad market rally began in November last year after the calling of an early election that put Japanese 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 is to buy back as much as ￥250 billion (US$2.7 billion) of its own shares, yesterday’s filing showed.
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 Japan Tobacco 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 yesterday’s filing.
“Japan Tobacco 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,” he added.