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Govt could cut Japan Tobacco stake to a third -DPJ official

Wed, 3 Aug 2011 11:07 GMT

Source: reuters // Reuters

* Govt mulls stake sales in Japan Tobacco, NTT

* IPO of Tokyo Metro has also been floated

* Stake sales in JT, NTT would require law revision

* JT shares likely to attract investor attention -analyst

* Money raised would help fund post-quake rebuild (Adds analyst comment)

By Kiyoshi Takenaka

TOKYO, Aug 3 (Reuters) - Japan's government could cut its stake in Japan Tobacco to one-third from one-half, a senior ruling party official said, a move that could net as much as $7 billion for spending on reconstruction after a massive quake in March.

The government has been considering the sale of shares in Japan Tobacco as well as telecoms giant Nippon Telegraph and Telephone (NTT) , which is 33.3 percent owned by the state, although a government reconstruction plan did not mention the companies by name.

Lawmakers have also floated the idea of selling the government's 53 percent stake in Tokyo Metro, which operates a vast subway network stretching across Japan's capital, through an initial public offering.

"The government is taking a look at a sale of Tokyo Metro shares. But it would not be enough. I believe the sale of some shares in NTT and JT should also be considered," ruling Democratic Party No.2 Katsuya Okada told media on Wednesday.

Unlike Tokyo Metro, where there are no legal hurdles, the running down of the government's stakes in JT and NTT would mean changes in the law, which currently requires the government to hold at least half of JT and one-third of NTT.

The government owns about 2.1 trillion yen ($27.2 billion)worth of NTT shares and 1.7 trillion yen of Japan Tobacco stock.

Based on the assumption it would sell 60 percent of its stake in Tokyo Metro, it has also earmarked 115 billion yen in possible proceeds into its budget for this year.

GOING OVERSEAS

The government has previously sold JT stock through the market via domestic and overseas public offerings, and further share sales would also look to generate interest from investors both at home and abroad, analysts said.

"Comparatively its valuation is cheap and it generates 250-300 billion yen in free cash flow every year, which will clearly put it in a net cash position in two years," said Hiroshi Saji, a senior analyst at Mizuho Securities.

"So barring no major M&A activity (by the company), there is a possibility that it would raise investor returns, which are currently low relative to overseas rivals."

Regarding NTT, an analyst at a foreign brokerage in Tokyo said the former telecoms monopoly would likely buy back shares the government sheds, limiting any impact on its stock price and the supply-demand balance.

Okada also said the government would be facing a cash crunch in the autumn if a bill for deficit-financing bonds did not pass parliament, and that the nation's financial situation is even more severe than that of the United States.

"Failure to pass this bill could lead to downgrades on government bonds and higher interest rates. Damage from higher interest rates would be extremely serious for Japan, which is saddled with a debt of nearly 1,000 trillion yen," Okada said.

"The government is in a situation where it cannot issue new bonds. After autumn, when we have exhausted our tax revenues, we won't be able to make payments. The situation we are in is as dire as the one the United States was recently in, or could be even worse." ($1 = 77.145 Japanese Yen) (Additional reporting by James Topham; Editing by Edwina Gibbs and Joseph Radford)