U.K. fund accuses Tokyo over tactics in J-Power stake
TOKYO: The Childrens Investment Fund Management, the $10 billion British hedge fund, on Friday accused the Japanese government of manipulating public opinion to justify rejecting its bid to double its stake in J-Power.
“This outcome was predetermined,” John Ho, Asia chief of the fund, known as TCI, said at a news conference here. “Even before we applied, the decision to reject us had been made.”
He added: “The recommendation has done Japan a major disservice.”
Japan advised TCI last week to drop its request to buy more J-Power shares, invoking national security for the first time in turning down a bid some investors viewed as a test of its openness to overseas capital. Japan ranked last among major economies as a destination for foreign direct investment from 1997 to 2006, according to the Organization for Economic Cooperation and Development.
“The implication of TCI choosing the global arena to fight is an example of the frictions engendered when global capital flows encounter resistance from entrenched local interests,” said Ed Rogers, chief executive of Rogers Investment Advisors. “All of these deals need to be looked at in isolation to determine if the entire Japanese system is truly fighting globalization. I dont believe that to be the case.”
Ho said that the fund was refusing to withdraw the bid to raise its holding in the and that was seeking further talks before a final government decision, which may come by mid-May. “The process has not been fair,” he said.
TCI was not considered on its merits after Japans trade minister and his deputy made public statements opposing the fund during a review of the bid, the fund said Friday. Unidentified ministry officials were “constantly quoted” in local news reports as saying that TCIs application to double its holding in J-Power would be rejected, TCI said.
“Undefined concepts of national security and public order have been used as a pretext to block legitimate investments,” Ho said. The fund said the purpose of ministry leaks was to ensure a negative decision was “a foregone conclusion.”
Shares of J-Power, formally known as Electric Power Development, rose 3.2 percent to close at 3,920, or $37.40.
Increased foreign investment in the utility might threaten the countrys power supply, Japans advisory notice argued. In addition to its nuclear ambitions, J-Power is Japans only producer with plants nationwide, and it runs the sole transmission grid linking all four main islands. Overseas investors hold as much as 40 percent of J-Power, and TCI is the biggest shareholder.
On Wednesday, J-Power won state approval to construct its first nuclear plant, which will be the first in Japan to use recycled fuel. Ho repeated on Friday that TCI had offered to abdicate voting rights involving the nuclear plant to meet security concerns.
Trade Minister Akira Amari this month called TCIs bid “different from other investments by overseas companies” and cited a need to prevent insufficient investment in power transmission networks.
Ho said Japanese officials had “sensationalized the issue by referring to potential blackouts and power shortages, which are unfounded and unprofessional.”
J-Powers 1.77 percent return on assets lags behind the 2.20 percent of Tokyo Electric Power and the 2.16 percent of Kansai Electric Power, which serves the region around Osaka.
TCI this month urged J-Power to increase dividends, name outside directors and spend as much as 70 billion buying back shares that had lost 27 percent of their value in the past year.
The fund dismissed government concerns that steps to raise returns might hinder investment in plants and transmission.
The fund estimates that J-Power spent 68 billion - double its forecast 32 billion profit this year - buying stakes in companies like Nippon Steel. Those investments have yielded a loss of 15 billion, it said.
“This has been great in raising transparency and improving corporate governance in Japan,” said Angus McKinnon, senior partner at Tozai Investment Advisory, a hedge fund adviser based in Tokyo. “Hopefully, it may even wake up the government.” Nippon Steel forecasts profit drop
Nippon Steel has forecast a 41 percent decline in profit because material costs are rising faster than product prices can be increased, Bloomberg News reported Friday from Tokyo.
Net income will probably fall to a five-year low of 210 billion in the year through March 2009 from a record 355 billion in the previous year, the company said.
