September 29, 2017 / 10:22 AM / a year ago

Japan Post to invest funds from future group share sales for growth: CEO

TOKYO (Reuters) - Japan Post Holdings (6178.T) will use proceeds from future share sales of its financial units on growth measures including on acquisitions, rather than giving money back to shareholders, its CEO said on Friday.

FILE PHOTO: A woman walks past an advertisement board of Japan Post at its headquarters in Tokyo, Japan January 30, 2017. REUTERS/Kim Kyung-Hoon/File Photo

The postal and financial giant has been criticized for M&A missteps and a lack of clear growth prospects. Its $11.5 billion share sale earlier this week brought those concerns to the fore, though investors like its attractive dividend yield.

“As a going concern, we would like to use the money on investments,” CEO Masatsugu Nagato said at a news conference when asked what Japan Post will do with the money after eventually selling stakes in its bank and insurance units.

Currently, Japan Post holds 74 percent in Japan Post Bank (7182.T) and 89 percent in Japan Post Insurance (7181.T). Japan Post is required by law to eventually sell down its stake in the two units, though no specific time frame is set.

Nagato said he could not comment on the timing of the sale. He did not specify any acquisition targets or detail investment plans.

Japan Post and its two units made unprecedented three-way initial public offerings in 2015 as part of Japan’s last large-scale privatization.

The Japanese government said this week it has raised 1.3 trillion yen ($11.5 billion) from its sale of Japan Post stock. As a result of the offering, the government’s stake in Japan Post will be less than 60 percent.

The offering was the world’s second-biggest share sale so far this year, after Italian bank UniCredit Spa’s (CRDI.MI) $13.7 billion sale in February.

Japan Post has a dividend yield of 3.7 percent, against the benchmark Nikkei average's .N225 1.7 percent.

“It’s hard for me to say, but the postal business is not destined to grow, so but we need something attractive for investors,” Nagato said. “For the time being, we have to use dividend as an effective way” to lure investors, he said.

One bright spot is the parcel delivery business, which has been seeing a sharp rise in volume thanks to strong growth in e-commerce.

Japan Post said on Friday its parcel delivery volume jumped 27 percent year-on-year in August, while its traditional mail volume declined 4.1 percent.

But Japan’s parcel delivery industry has been hit by labor shortage, pushing up costs for Japan Post and its rivals such as Yamato Holdings Co (9064.T).

“Our system has not been able to catch up with the sharp rise in e-commerce and tight labor markets and our frontline staff’s working condition has deteriorated as a result,” Yamato President Masaki Yamauchi told a news conference on Thursday while announcing its new business strategy.

Reporting by Taiga Uranaka; Editing by Muralikumar Anantharaman

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