Japan ruling party eyes sale of govt’s stake in NTT

The Japanese government will consider selling its 34% stake in Nippon Telegraph and Telephone to help fund its defense buildup, a senior official from the ruling Liberal Democratic Party said Tuesday.

“We will move forward with discussion, including the possibility of full privatization,” LDP policy chief Koichi Hagiuda said in a party meeting.

Hagiuda heads a special LDP committee weighing funding sources other than tax hikes for the defense spending increase. The committee will set up a project team soon to begin discussing the NTT proposal as early as August.

NTT is publicly listed but is classified as a “special company” under the so-called NTT Law. The legislation, which went into full effect when the company officially embarked on a path to privatization in April 1985, stipulates that the government “must constantly hold more than one-third of the total number of the issued shares.”

Official NTT disclosures show that the government, under the name of the minister of finance, is the single largest shareholder, controlling 34.25% of all outstanding shares, excluding treasury stock, as of the end of March.

Tokyo-listed NTT shares sharply declined in response to news of Hagiuda’s statement around midday Tuesday and eventually closed at 163 yen, down 2.6% from the previous trading day. Based on this price, the government owns around 5 trillion yen ($35.5 billion) of NTT stock.

“As communications methods have become more sophisticated and diverse, and international competition has intensified, we need to consider whether to maintain our obligations,” Hagiuda said.

The special committee submitted a package of defense funding proposals to the government in June, including using surplus tax revenue and setting up a system similar to the hometown tax program that lets people earmark a portion of their tax payments for specific municipalities.

It mentioned proceeds from the sale of government-owned shares as an option, specifically discussing NTT. “The future of the NTT Law should be examined promptly, keeping economic security in mind,” the document said.

“We will watch the discussion within the party,” Chief Cabinet Secretary Hirokazu Matsuno told a news conference Tuesday.

There are those in the LDP who are leery of the idea from a security standpoint. One is Hiroshige Seko, the party’s secretary-general in the upper house. Seko was an NTT employee for more than a decade before running for the upper house in a 1998 by-election.

“NTT is a company that is responsible for infrastructure and communications privacy,” Seko told reporters Tuesday. “There has to be wide-ranging discussion, including on how to handle restrictions on foreign investment,” he said. The NTT Law caps foreign ownership of the company at one-third.

NTT is carefully monitoring how the debate within the ruling party unfolds.

Takashi Hiroi, a senior executive vice president, told shareholders at the annual general meeting on June 22 that he would refrain from making any comment on government policy but that there are various issues, including disclosures of R&D results and restrictions on foreign ownership, which involve revision of the NTT Law.

“There should not be an influence on stock price, and we will assert this point to the government during the discussion process,” President and CEO Akira Shimada said at the shareholders meeting.

The NTT Law requires NTT to contribute to “adequate, fair and stable provision” of universal nationwide telephone services, which it calls “indispensable to the lives of Japanese citizens.”

In recent years, when the government has sold stakes in companies like Japan Post and Japan Tobacco on the open market, it has typically set the price via book-building — a process of gauging investor demand. Tokyo has not put any NTT shares directly on the market for years, instead selling them to NTT itself via buybacks since 2002.

Stock sales by the government can risk skewing the supply-demand balance on the market, driving prices down. The scale and timing of an NTT offering would be considered carefully to minimize the negative impact. Reuters