TCI presses Tokyo to sell its Japan Tobacco stake
UK-based activist hedge fund The Children’s Investment Fund has escalated its campaign against Japan Tobacco, calling for the Japanese government to sell off its remaining stake in the company. In a letter to Shinzo Abe, Japan’s prime minister, ahead of JT’s annual shareholder vote next month, TCI called for a full privatisation of the government’s 33 per cent holding, arguing it would greatly contribute to the performance of the company and help boost the credibility of his economic reforms. TCI, which holds a 1.1 per cent stake, according to last reported figures, has so far met with resistance to a string of proposals to change the way JT’s balance sheet is managed since launching an initial campaign in 2011. "Further privatisations are crucial to the achievement of your economic growth targets, and JT’s full privatisation would provide Japan with a strong boost in confidence from the international investor community," TCI partner Oscar Veldhuijzen wrote in the letter to Mr Abe published on Tuesday. Japan Tobacco declined to comment on the letter. Japan Tobacco has increased dividends and buyback programmes in recent years but has maintained that TCI’s campaign has had very little impact on its decisions. Last month, JT’s board said it would reject all five resolutions from TCI, to be presented at the annual meeting in June. JT said the resolutions – including a higher dividend, a buyback of Y800bn and the cancellation of all existing Treasury shares – were "substantially the same" as those rejected at the company’s AGM in each of the past two years. Significantly higher returns to shareholders would conflict with management principles, it said, because doing so would require additional borrowing, impairing the group’s ability to "make business investments for future profit growth". The escalation in TCI’s long campaign comes as Japan’s government is urging institutional investors to take a more active role in engaging with companies on matters of strategy and capital management. TCI believes the company should be trading at a premium to peers as it has sales and profit growth that is faster than competitors, but argues that the lack of shareholder friendly management of JT’s balance sheet has led to a 30 per cent discount based on its enterprise value to operating profits. In 2011, the Japanese government announced it would sell down 16.3 per cent of JT. When the placement took place last year JT bought up about a third of the shares on offer.