Japan Decides To Sell Stake In Japan Tobacco For Over $10 Billion; Markets Rally

The Japanese government is set to raise over $10 billion from a sale of stake in a tobacco company to fund the reconstruction of areas devastated by the 2011 earthquake and tsunami.

The government through the ministry of finance which owns over 50 percent of stake in Japan Tobacco Inc will sell around 333 million shares constituting a third of its stake in the company, Reuters reported citing a regulatory filing Monday.

The news of stake sale comes in a time as the Japanese equity markets are rallying to multiple-year highs. Nikkei shares average rose to a 53-month high Monday on speculation that Bank of Japan (BOJ) could get a new governor, who is known to be in favor of aggressive monetary easing.

It is said the $62 billion Japan Tobacco Inc, a former state monopoly will buy back as much as 250 billion yen ($2.7 billion) worth of its own shares, prior to the stake sale, Monday's filing showed.

The stake sale is considered to be the biggest since the U.S. Treasury's $20.7 billion sale of American International Group Inc shares in Sept. The pricing of the current stake sale is likely to happen between Mar. 11 and 13.

Japanese equity markets soared in past three months to touch four-year-highs as the economy showed signs of recovery from a mild recession, backed by the aggressive monetary and fiscal reforms by the newly-elected Shinzo Abe government. In an effort to boost the economic growth and to contain the deflationary elements, the Abe government has resorted to aggressive monetary policy easing measures that has led to a depreciation of its domestic currency thereby improving prospects for exporters.

The Japanese parliament had approved the sale of government stocks from the companies to raise about $270 billion - the estimated funding to rebuild the northeast coast ravaged by a earthquake and Tsunami in 2011. JPMorgan Chase & Co, Daiwa Securities Group Inc, Goldman Sachs Group Inc, and Mizuho Securities would act as underwriters for the Japan Tobacco offering.

Japan Tobacco Inc, the world's No.3 tobacco company has excellent growth record and has outperformed rival Philip Morris International Inc and British American Tobacco Plc since the bill approving the stake sale was approved in 2011, Thomson Reuters data showed.

"We see ample room for JT to increase their share buybacks and dividends going forward as they have no net debt," Oscar Veldhuijzen, a London-based fund manager with The Children's Investment Fund Management (UK) LLP and a holder of Japan Tobacco stock said before Monday's filing.

Shares in Japan Tobacco closed Monday up 1.4 percent at 2,901 yen and Japan's benchmark Nikkei climbed 2.43 percent or 276.58 points to close at 11,662.52.

Japan is also considering selling stake in Japan Post Holdings Co. to raise money for post-quake reconstruction.