By Shinichi Saoshiro
TOKYO Feb 25 Japan's government will sell
around a third of its stake in Japan Tobacco Inc, the
world's No.3 tobacco company, to raise about $10.4 billion for
reconstruction of areas devastated by a 2011 earthquake and
The Ministry of Finance, which owns just over 50 percent of
the $62 billion former state monopoly, is selling 333 million
shares, according to a regulatory filing on Monday, with the
deal to be priced between March 11-13.
The offering, the largest such deal since the U.S.
Treasury's $20.7 billion sale of American International Group
Inc shares in September, 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 roughly $270 billion it expects to spend to
rebuild the northeast coast after the quake in March that year.
Reuters reported early last week that the stake sale would
be launched within days.
Conditions for a sell-down in the government's stake in
Japan Tobacco have improved in recent months, with the benchmark
Nikkei share average hitting a 53-month high on Monday.
A broad market rally began in mid-November after the calling of
an early election that put 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, whose cigarette
brands include Winston, Camel, Benson & Hedges and Mild Seven,
will buy back as much as 250 billion yen ($2.7 billion) worth of
its own shares, Monday'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 JT 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 Monday's filing. "JT 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."
Debt holders are also optimistic about the firm's ability to
generate free cashflow after the share buy back is completed.
Yields on its 2014 eurobond have tumbled 18
basis points this month and are currently at 0.60 percent.
Shares in Japan Tobacco closed on Monday at 2,901 yen, up
1.4 percent on the day. At that price, the share sale would be
valued at about 967 billion yen.
Japanese law requires the government to hold at least
one-third of Japan Tobacco's 2 billion shares outstanding.
Japan's large and liquid stock market is used to digesting
big offerings, such as the $8.5 billion IPO of Japan Airlines Co
Ltd in September and a $2.3 billion follow-on deal by
All Nippon Airways Co.
Last month, U.S. private equity firm Cerberus Capital
Management LP raised about $1.7 billion by selling
shares in Japan's Aozora Bank Ltd.
Overall, equity issuance in Japan rose 16.8 percent last
year to $26.4 billion, driven by large IPOs and a flurry of
activity that made 2012 the busiest year for deals since 2008,
Thomson Reuters data showed.
The ministry last June selected JPMorgan Chase & Co,
Daiwa Securities Group Inc, Goldman Sachs Group Inc
and Mizuho Securities as underwriters for the Japan
Nomura Holdings Inc was not selected as an
underwriter after its involvement in an insider trading scandal.
But a source familiar with the details said on Monday that
Japan's largest investment bank had been given a lesser role in
the sale, along with SMBC Nikko Securities, Mitsubishi UFJ
Morgan Stanley Securities, Merrill Lynch and UBS AG.
Japan also plans to sell shares of Japan Post Holdings Co,
which runs the nation's biggest savings institution, to raise
money for post-quake reconstruction.