Japan’s Ruling Party Proposes Sale of Entire Japan Tobacco Stake

Japan’s ruling party proposed selling the government’s majority stake in Japan Tobacco Inc., the world’s third-biggest publicly traded cigarette maker, to help fund rebuilding after the March 11 earthquake.

Japan Tobacco

Japan Tobacco logo

Japan Tobacco fell 0.8 percent to 360,000 as of 1:01 p.m. in Tokyo trading after earlier rising as much as 9.2 percent, the most in six months. The broader Topix index rose 0.5 percent.

The government may raise 1.8 trillion yen ($24 billion) by selling its 50.01 percent stake in Japan Tobacco at the stock’s current price. A sale may help Japan Tobacco operate with fewer constraints as the government looks to impose more taxes, including on cigarettes, to fund recovery from the March 11 earthquake and tsunami and the nuclear disaster that followed.

“The company will have freedom to manage itself,” said Mikihiko Yamato, a research partner at Japan Invest KK. “If the market turns around and moves the shares up, the government may sell its stake earlier than the original plan.”

On Sept. 20, Japanese Health Minister Yoko Komiyama said tobacco taxes in Japan should be raised until the average price of a pack of cigarettes is about 700 yen, or 75 percent higher than the current level, to cut medical costs, Health Minister Yoko Komiyama said. The Democratic Party of Japan also proposed a 9.2 trillion yen overall tax increase yesterday.

Share-Price Gain

The maker of Mild Seven and Camel cigarettes has gained 20 percent this year in Tokyo trading, compared with a 16 percent decline for the Topix index.

“We are hoping Japan Tobacco will be fully privatized, which has been the government’s policy,” Hideyuki Yamamoto, a spokesman for Japan Tobacco, said by phone today, declining to comment further. Yamamoto had said earlier this month that Japan Tobacco was “seriously considering” buying back some shares if the government were to sell.

Japan plans to spend 19 trillion yen over the next five years to rebuild after the record temblor and tsunami devastated the northeast and prompted world’s worst nuclear disaster 25 years. While the government has already approved two packages totaling about 6 trillion yen, the economy has shrunk for three straight quarters.

Pressure to raise money now may have pushed the government to sell more of its stake faster than planned, Yoshifumi Kikuchi, head of dealing at Nissan Century Securities Co., said today by phone.

“I didn’t expect the government to sell its entire stake,” Kikuchi said. “It’s possible the government will sell its stake much earlier than planned since the country’s finances are tight.”

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