Japan Tobacco Priced 2% Below Market for Government Sale

Japan priced a stake in the former tobacco monopoly at 2 percent less than yesterday’s closing share price as part of a 978 billion yen ($10 billion) sale to help fund rebuilding after the 2011 earthquake and tsunami.

The Ministry of Finance is selling 253.3 million Japan Tobacco Inc. (2914) shares, a 13 percent stake, at 2,949 yen each, according to a ministry statement yesterday. The government earlier sold 80.1 million shares for 230.6 billion yen as part of the planned reduction in its holdings, it said Feb. 27.

The offering, the country’s largest in three years, comes after sluggish economic growth in 2012 prompted a delay in the planned sale. Japan Tobacco climbed to a five-year high on March 7 on expectations a weaker yen would boost profit from overseas, where the Tokyo-based cigarette-maker got about 54 percent of operating income last fiscal year.

The government has said spending on post-quake rebuilding would be partly financed by sales of stakes it holds, including Japan Tobacco. The budget for the fiscal year ending March 31 includes an estimated 500.3 billion from the Japan Tobacco share sale, an amount that had been expected to increase to reflect the gains in market prices.

Japan Tobacco fell 1.4 percent to 2,967 yen as of 10:27 a.m. in Tokyo trading, paring this year’s gain to 22 percent compared with a 19 percent advance for the Nikkei 225 Stock Average. The shares dropped 3.7 percent to 3,010 yen at the close of trading in Tokyo yesterday, before the announcement.

Bigger Budget

Japanese Prime Minister Shinzo Abe in January increased the budget for rebuilding after the 2011 earthquake and tsunami by 6 trillion yen to 25 trillion yen. The record 9.0-magnitude earthquake caused a tsunami that left about 19,000 people dead or missing and forced the evacuation of 160,000.

The stake sale is the largest in Japan since Dai-ichi Life Insurance Co.’s $11 billion initial public offering in February 2010, according to data compiled by Bloomberg.

The transaction leaves the ministry holding about 33 percent of the company, down from 50 percent. Japan Tobacco spent 250 billion yen to buy 86.8 million of its own shares to mitigate the effect of the sale on the market, it said Feb 27.

To contact the reporters on this story: Yuki Yamaguchi in Tokyo at yyamaguchi10@bloomberg.net; Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

To contact the editor responsible for this story: Anjali Cordeiro at acordeiro2@bloomberg.net

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