Japan Government likely to sell stake at Japan Tobacco

The Japanese government is weighing the options of selling its shares of Japan Tobacco, but encountered pressure due to concerns over the effect on local tobacco farmers, confirmed a member of ruling Democratic Party.

Japan Tobacco Office in Tokyo Downtown

Japan Tobacco Office in Tokyo Downtown

Koriki Jojima, the vice chairman of the Japan Democratic Party policy research panel said that it is high time to sell the government stake in Japan Tobacco in order to generate more funds needed to rebuild Northeastern part of the country dramatically damaged by Tsunami and earthquake several months ago.

The deal would be one of just several privatizations in the country, producing huge revenues for public needs. However, the opposition to the sale is growing and could prevent the deal, said Jojima.

“Some officials are concerned that the sale JT could affect approximately 11.000 farmers who cultivate tobacco leaves”, he explained.

According to a legislation implemented in 1984, Japan Tobacco is obliged to purchase the total tobacco crop grown in the country from the farmers who live in the poorest regions of the country. The law protects the livelihood of local tobacco farmers.

The effect that a smaller government share in JT could have on this legislation is “the major obstacle to the deal”, especially since most tobacco farms are situated in Fukushima, which was damaged dramatically by March’s earthquake, tsunami and nuclear crisis.

Mr Jojima admitted that he thinks that a prior condition to the sale of any of the government’s share of JT holding would be that the tobacco giant would continue purchasing all tobacco crop cultivated in Japan.
Mr Jojima’s opinion underlines the high level of political resistance to selling of the government’s stake in Japan Tobacco, in spite of the considerable decrease in the number of tobacco farms, which went from 21,000 reported in 2002 down to 10,800 in 2011.

Japan’s cash-starved government has to deal with Y19,000 billion ($248 billion) needed to rebuild the provinces which were devastated by natural disaster during the next five years. At the same time it owns 50 percent of the shares of Japan Tobacco, which is valued at nearly Y1,728billion at current price per share.
Under law, the government should own 5 million out of 10 million of outstanding shares of the tobacco giant, and in case the company launches new stock, the government should hold not less than 30 percent, therefore any sale of the shares would need a change in law. Experts and investors think the government will likely to sell its shares to just more than 30 percent.

The perspective of sale is likely to be welcomed by shareholders, especially since JT recently admitted it intends to buy back some of its shares, which experts believe would boost per-share revenues.
Japan Tobacco is the third-largest tobacco company in the world, the company markets such best-selling cigarette brands as Mild Seven, Camel, Winston (excluding the U.S.), as well as Monte Carlo and Glamour brands.

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