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Insider trading probe casts shadow on Japan Tobacco offering
TOKYO, June 4 |
TOKYO, June 4 (Reuters) - A widening probe of insider trading that has ensnared Japan's largest brokerage now also threatens to complicate a plan to raise as much as $6 billion to fund reconstruction efforts after the March 2011 earthquake, bankers and officials say.
Japan's Ministry of Finance is in the process of selecting four underwriters to manage a stock offering for Japan Tobacco , the world's third largest cigarette company - a deal expected to rank as one of Japan's largest share sales in recent years.
The deal also represents the first major Tokyo share offering since Japan's securities regulators began a formal investigation of insider trading at Nomura Holdings.
Nomura is Japan's largest brokerage, the market's lead underwriter and a dominant force with Japanese retail investors that would normally be expected to jostle for a lead spot in a signature deal like Japan Tobacco.
But Nomura would be ruled out as an underwriter for the sale of the state-owned company if the insider trading probe results in penalties against it, officials say.
The finance ministry plans to cut the government stake in Japan Tobacco to one third from around a half to raise cash for rebuilding the country's tsunami-ravaged northeast coast.
Nomura declined comment on the Japan Tobacco share sale and whether its business might be affected by the investigation.
Twelve investment banks submitted their applications for the Japan Tobacco share sale by a Wednesday deadline, five of which were Japanese brokerages, people with direct knowledge of the process told Reuters. The ministry will shortlist 3-5 brokerages for sales of the stock in Japan and 4-6 foreign banks to handle overseas sales, officials say. A final decision on underwriters will be made by mid-June.
If Nomura were excluded, it would pay a price in prestige.
The Japan Tobacco deal is expected to generate underwriting fees of just 1 percent of the offering, but it would represent an opportunity to show the kind of marketing prowess that could be used to land other potential issuers, bankers say.
Nomura has already been linked to insider trading in two large stock offerings.
In those stock cases, Nomura staff leaked information on sales of shares for Mizuho Financial Group Inc and oil explorer Inpex Corp prior to their announcement, according to regulators and people with knowledge of the case.
Last week, the insider trading probe reached JP Morgan Chase & Co as the Wall Street bank was identified as the source of leaked confidential information regarding a planned share offering by Nippon Sheet Glass Co Ltd in 2010.
Japan's Securities and Exchange Surveillance Commission has also asked the U.S. Securities and Exchange Commission (SEC) to investigate insider trading in a 2010 share offering by Tokyo Electric Power - a deal where Nomura was lead underwriter.
POINTS FOR COMPLIANCE
The Ministry of Finance last month established a numeric scorecard for selecting underwriters that includes an evaluation of each firm's strategy for selling Japan Tobacco shares and its proposed fee. But 12 percent of the total score hinges on the brokerage's compliance efforts, documents show.
If banks in the running for the Japan Tobacco deal were penalized for a breach of securities laws, they would be excluded from the deal, people close to the process said, asking not to be named because the selection is ongoing and no penalties have been levied on Nomura.
There is precedent for that kind of action. In 2002, Morgan Stanley was not allowed to bid to join the government sale of shares in East Japan Railway and West Japan Railway. The invitation to bid was sent out when Morgan Stanley was serving a 5-week ban on trading stock for its own account in Japan after breaching securities regulations.
Nomura, which has a vast network for domestic retail investors, has deep experience with Japanese government share sales, including those for NTT, Japan's biggest phone company, and East Japan Railway, the nation's largest railway operator.
Nomura was the top underwriter for handling shares for Japanese companies last year, while JPMorgan ranked 14th, according to Thomson Reuters data.
JPMorgan also declined to comment on the Japan Tobacco share offering. The brokerage said this week that Japanese regulators had not found any "organizational" involvement in insider trading.
The offering would allow the ministry to sell as many as 1.66 million shares in Japan Tobacco. The shares closed on Friday at 432,500 yen ($5,500) each, and have gained 19 percent so far this year.
Japan Tobacco, which last month announced the acquisition of Belgian tobacco product maker Gryson NV for 475 million euros, has said it would buy back about 250 billion yen of its outstanding shares if the government proceeds with a share sale before next March - leaving around $6 billion to help the post-disaster rebuilding effort.
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