Osaka Said to Scrap Commuter Rail Sale After Lone Star Rejection

Osaka prefecture in western Japan canceled the 78.1 billion yen ($760 million) sale of a commuter rail line after local lawmakers rejected Lone Star Funds as the winning bidder, according to a person with knowledge of the matter.

The government hasn’t decided whether to start another auction of Osaka Prefectural Urban Development Co., said the person, who asked not to be identified as the matter is private.

Earlier today, fifty-three of 104 assembly members voted against Lone Star’s offer to buy the state-owned railway and logistics company, according a webcast of the tally. The company operates Semboku Rapid Railway, a commuter line in Osaka used by more than 50 million people annually.

The cancellation of the sale follows opposition in cities along the Semboku line such as Sakai, where officials have said Lone Star’s pledge to cut the transit fee by 10 yen wasn’t enough. Dallas, Texas-based Lone Star was picked as the winner last month by a government committee, beating offers from Fortress Japan Investment Holdings LLC and Nankai Electric Railway Co. (9044)

“One concern is that investors could pull back from future investment opportunities in Osaka’s infrastructure assets and shift more of their focus back to Tokyo, which is getting the spotlight as the host of the 2020 Olympics Games,” Yasuhide Yajima, chief economist at NLI Research Institute in Tokyo, said before today’s assembly meeting.

Kazuyo Tsuji, a spokeswoman for the Osaka government, said she hasn’t been informed of any future plan for the company. A person who answered the phone at Lone Star’s Tokyo office today said she wasn’t authorized to comment.

Osaka Bay

Nankai Electric offered 72 billion yen for Osaka Prefectural Urban Development while Fortress Japan bid 73.4 billion yen. Osaka’s government owns 49 percent of the company, with the remainder controlled by private investors including Osaka Gas Co. and Kansai Electric Power Co.

Yasuzo Yoshida, an Osaka assembly member who represents the opposition Democratic Party of Japan, questioned whether a foreign investment fund seeking short-term profits can manage a railroad business safely.

Osaka Prefectural Urban Development, founded in 1965, runs the express commuter line in the Osaka Bay area and operates two logistics centers.

Lone Star, founded by John Grayken, pledged to boost Osaka Prefectural Urban Development’s profitability and improve services, and planned to sell the company in an initial public offering after five years, according to a statement last month from Osaka’s government.

To contact the reporters on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net; Emi Urabe in Tokyo at eurabe@bloomberg.net

To contact the editors responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net; Katrina Nicholas at knicholas2@bloomberg.net

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