A British activist hedge fund rejected yesterday Japan’s request for it to withdraw a plan to double its stake in the country’s top power wholesaler on the grounds of national security.
The Children’s Investment Fund said it was rejecting the government’s “recommendation” last week that it should desist from raising its stake in Electric Power Development Co, or J-Power, to as much as 20 percent.
“This outcome was predetermined” to protect vested interests and the company’s management, said John Ho, the head of the fund’s Asian operations.
He said it was “wrong to use national security and public order as a pretext to choose shareholders,” predicting the move would mean higher electricity prices.
“This is a real national security threat,” he told a press conference in Tokyo.
The government said last week that if the fund did not comply with its recommendation, then the next step would be a mandatory order.
Ho said that the fund would wait for Tokyo’s next move. It submitted a letter earlier this week to the British government asking it to investigate Japan’s “illogical” decision.
He said the British government had promised to “look at the matter seriously” following the request from the fund.
Japan’s foreign exchange and trade law requires overseas investors to secure government approval before acquiring a stake of 10 percent or more in a company deemed vital for national security and the maintenance of public order.
It is the first time that Japan, which has virtually no natural energy resources of its own, has invoked the law to block a foreign investment.
But it is not the only country that reserves the right to protect essential industries from foreign takeovers. The US also has a foreign investment law which it says is aimed at ensuring national security.
The British fund, already the top shareholder in J-Power with a stake of 9.9 percent, wants J-Power to raise its dividend payout.
The fund challenged the Japanese government’s view that it is a short-term investor whose bid could threaten stable energy supplies, saying the review process lacked transparency and was based on “erroneous information.”
Ho said that the government’s position appeared to favor cross-shareholdings between companies.
“This implication takes Japan back 10 to 20 years in the capital market development,” he said.
Hedge funds are still viewed with suspicion in the world’s second-largest economy.
The highest profile foreign fund operating in Japan, Steel Partners of the US, has suffered a series of setbacks in the country, including a defeat in a legal battle that went all the way to the country’s top court.
In February Tokyo shelved a proposal to restrict foreign ownership of airports amid concern that the move would undermine wider efforts to attract investment.
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