Goldman Sachs Among Banks Said to Get Lower Fees for JT Sale

Japan is paying lower fees to banks including Daiwa Securities Group Inc. and Goldman Sachs Group Inc. to sell $10 billion of shares in Japan Tobacco Inc., a Ministry of Finance official said.

The government will pay 0.531 percent to brokerages for selling 746.9 billion yen ($7.7 billion) of shares, less than the 1.125 percent paid when it last sold a stake in the cigarette maker in June 2004, said the official, who asked not to be named as the terms are private. That will yield a total of 4.1 billion yen to at least 37 underwriters, the person said.

Investment banks operating in Japan have been charging clients less to manage share sales since the global financial crisis as competition intensifies. Brokerages may be willing to accept lower fees for government offerings to beef up their resumes, like in India, where securities firms often arrange share sales by state-owned companies for next to nothing.

“That’s smaller than we expected, which illustrates how competitive it is to get a mandate as the lead underwriter for a big public offering by the government,” said Kazumi Tanaka, an IPO analyst at T&C Financial Research Inc. in Tokyo. “Underwriting a large state deal like this will help the banks establish a strong track record.”

Underwriter Rankings

Daiwa and New York-based Goldman Sachs were selected by the government in June to lead the global offering after 12 banks submitted bids. The deal propelled Tokyo-based Daiwa to the top of Japan’s equity underwriting rankings for this year and Goldman Sachs to second, data compiled by Bloomberg show.

The Finance Ministry is selling the 13 percent stake in the former monopoly, Japan’s largest offering in three years, to help fund rebuilding after the 2011 earthquake and tsunami. Demand from domestic and overseas investors is more than double the supply of Japan Tobacco shares being sold, and the government doesn’t plan to sell extra stock, the official said.

Hiroko Matsumoto, a Tokyo-based spokeswoman for Goldman Sachs, declined to comment on fees, as did Daiwa’s spokesman Hiroharu Misawa. Ryohei Sugata, a spokesman for Tokyo-based Japan Tobacco, also declined to comment.

Equity underwriting fees in Japan averaged 3.352 percent last year, below the 4.12 percent mean for the preceding 10 years, according to data compiled by Bloomberg excluding self-led offerings.

The government is selling 253.3 million Japan Tobacco shares at 2,949 yen apiece, according to a statement from the Finance Ministry yesterday. That’s 2 percent less than yesterday’s closing price.

Buyback Fees

The ministry earlier sold 80.1 million shares to the tobacco maker for 230.6 billion yen as part of the planned reduction in its stake, it said on Feb. 27. Daiwa will get 3.6 million yen in fees for managing the buyback, the official said.

“Japan Tobacco is a profitable company, making it less risky to underwrite the stock,” said Tanaka at T&C Financial.

Shares of Tokyo-based Daiwa fell 3.1 percent, the biggest decline in almost seven weeks, to 651 yen at the close of trading. Japan Tobacco dropped 0.7 percent to 2,990 yen.

Nomura Holdings Inc. was No. 1 manager of Japanese share sales in 2012, followed by Sumitomo Mitsui Financial Group Inc., Mitsubishi UFJ Financial Group Inc. and Daiwa, the data show.