Government to Sell $10.3 Billion Stake in Japan Tobacco

Japan’s government will sell a stake in Japan Tobacco Inc. for about $10.3 billion to help cover reconstruction costs of the 2011 earthquake in the country’s largest share offering in three years.

The Ministry of Finance owns about 1 billion shares, or 50 percent, of the cigarette maker and will offer as many as 333.3 million shares next month, it said yesterday in a regulatory filing. Based on yesterday’s closing price of 2,901 yen a share, the stake is worth about 967 billion yen ($10.3 billion).

Japan Tobacco gained about 34 percent in Tokyo trading since mid-November, when the yen started weakening, boosting the value of the overseas earnings that account for more than half of operating income. The slumping Japanese currency spurred a 35 percent rally in the benchmark Nikkei 225 Stock Average in the same period.

“The timing for the sale is really good,” said Mitsushige Akino, executive director at Ichiyoshi Asset Management Co. “Japan Tobacco could pass as a good defensive stock, or a growth stock for its overseas business.”

The maker of Winston, Camel and Mild Seven brand cigarettes plans to buy back as many as 118 million of the shares for as much as 250 billion yen, it said yesterday in a statement.

The stock fell as much as 3.3 percent to 2,805 yen before closing 0.7 percent lower at 2,880 yen in Tokyo today.

At the top price for the maximum number of shares, the company will pay 2,119 yen a share, about 27 percent below yesterday’s closing price. The buyback will be between Feb. 27 and March 8, according to the statement.

March Pricing

The share sale may be priced as early as March 11, according to the filing. The transaction would be the largest in the country since Dai-ichi Life Insurance Co.’s $11 billion initial public offering in February 2010, according to data compiled by Bloomberg.

Goldman Sachs Group Inc. and Daiwa Securities Group Inc. are joint global coordinators for the sale, while JPMorgan Chase & Co., Morgan Stanley, Bank of America Merrill Lynch, Nomura Holdings Inc., Mizuho International Plc and UBS Investment Bank AG are among those managing the transaction, according to an e-mailed prospectus.

The finance ministry delayed a sale initially targeted for last year amid an economic slump. Under a law passed in 2011, the government can sell its stake down to about 33 percent of the company.

Share sales announced in Japan last year jumped 33 percent by value to 1.82 trillion yen, led by Japan Airlines Co.’s 663 billion yen initial public offering, according to data compiled by Bloomberg. About 133 billion yen in share sales have been announced so far this year in the country, excluding Japan Tobacco, the data show.

Quake Budget

Japanese Prime Minister Shinzo Abe last month increased the budget for rebuilding after the 2011 earthquake and tsunami by 6 trillion yen to 25 trillion yen.

The government said the spending would be partly financed by sales of stakes the government 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 would rise given the increase in the market price.

Japan Tobacco last month raised its net income forecast to 330 billion yen for the year ending March 31, citing the effect of the weaker yen, compared with a previous outlook for 318 billion yen. The shares have gained 19 percent this year.

The yen has lost about 15 percent against the U.S. dollar since mid-November, raising the value of overseas proceeds for companies from Japan Tobacco to Toyota Motor Corp.

Japan is rebuilding northeastern coastal areas damaged by the 2011 earthquake and tsunami. A record 9.0-magnitude earthquake struck March 11 that year causing a tsunami that left about 19,000 dead or missing and forced the evacuation of 160,000.