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Wednesday, Oct. 31, 2012

Profit doubt dogging bid to list Japan Post

Mail delivery service outlook clouds group's debut timetable


Japan Post Holdings Co., the government-owned conglomerate providing mail delivery, banking and insurance services, has worked out a schedule toward going public in three years — a move previously scuttled by the Democratic Party of Japan-led government.

News photo
Looking to go public: Japan Post Holding Co. President Jiro Saito speaks at a ceremony in Tokyo to mark the start of Japan Post Co. on Oct. 1. KYODO

Its shares, entirely owned by the government, can be expected to generate as much as ¥7 trillion in proceeds, raising hopes for a government that needs money to help rebuild the areas devastated by the March 2011 Great East Japan Earthquake and the tsunami it spawned.

It remains to be seen, however, whether the plan will move ahead because of concerns about the profit outlook for the mail unit.

After the holding company communicated its latest listing plan, Mikio Shimoji, minister in charge of privatization of the postal services, told reporters, "We now stand on the starting line to discuss new potential for business" by Japan Post Bank Co. and the other units.

This is not the first time the postal service group has attempted to debut on the stock market. In October 2005, Prime Minister Junichiro Koizumi spearheaded a law to privatize the postal services after weathering fierce opposition from lawmakers within his ruling Liberal Democratic Party.

His LDP successors even looked to partially roll back the privatization.

Japan Post was reorganized in 2007 into four business units under the holding company — banking, insurance, mail delivery and over-the-counter customer services for the three other units.

The next target was listing its shares on the stock market in 2010.

But the 2009 general election that saw the DPJ unseat the long-ruling LDP changed the entire political landscape. The DPJ invited Kokumin Shinto (People's New Party), launched by LDP rebels ousted by Koizumi due to their opposition to the postal privatization, to join in a new ruling coalition.

The new administration enacted a law to freeze the sale of Japan Post shares, scuttling the plan for the stock market debut.

Last April, however, the Diet enacted a law to revise the full privatization of the Japan Post group. This has left room for the government to retain influence over its services, in place of full-scale privatization, and cleared the way for a new plan to list the shares.

The government estimates that around ¥19 trillion will be needed for the five years from fiscal 2011 to rebuild the regions ravaged by the tsunami and is planning to raise funds through temporary hikes in income taxes and rolling back benefits for child-rearing families.

The government has not factored proceeds from the Japan Post Holdings share sales into the financing plan for the disaster reconstruction, but if the listing proceeds as planned, officials will probably look to expand the financing quota from the currently estimated ¥19 trillion.

But the Finance Ministry, which is closely watching when the sale should actually go ahead, is not optimistic.

One official expressed caution, saying that "if the bottom line at Japan Post Holdings heads downward continuously, it will trigger heavy selling (of the listed stock). We naturally have to watch the overall market condition, too. We will consider (the debut timing) comprehensively."

Stock market watchers are also taking a critical look at the government-run entity. To spur investor appetite, the entire Japan Post group has to reinforce its corporate value.

To do that, "it is essential to raise the profitability of the postal service unit, which has been continuously losing money," said an analyst with a major brokerage.

Japan Post Holdings generated ¥468.9 billion in net profit in the year that ended in March. But the postal service, which was changed into the unit Japan Post on Oct. 1, is racking up losses, owing in part to the increasing use of email. The over-the-counter customer service is shoring up its earnings with the fees it earns from handling financial products of the banking and insurance units.

"Unless they transform into a business through competition with private-sector companies, its stock price will probably not go up and share transactions will likely remain sluggish," another official at a major securities house said.

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