REFILE-Q+A-What’s expected in Japan Post privatisation plan?

(Corrects paragraph 14 to remove reference to “Thursday” as the
comment was made earlier)

By Hideyuki Sano

TOKYO, March 18 (BestGrowthStock) – Japan may soon announce its
privatisation plans for Japan Post, the enormous state-owned
financial conglomerate.

The plan, the symbol of former prime minister Junichiro
Koizumi’s market-friendly reforms, was put on hold after the
Democratic Party-led government took power last year.

The Nikkei business daily reported on Thursday that banking
minister Shizuka Kamei has decided the government should retain
more than one-third of its shares in Japan Post. [ID:TOE62H020]

Following are some questions and answers about Japan Post.

WHAT IS JAPAN POST, WHY IS IT IMPORTANT?

Postal service operator Japan Post provides retail banking
and insurance services through its 24,000 post offices.

With financial assets of about 300 trillion yen ($3.4
trillion) — more than France’s GDP — it is Japan’s largest
financial institution. It is also about 1.5 times the size of the
nation’s largest private banking group, Mitsubishi UFJ Financial
Group (8306.T: ) (MTU.N: ).

That means even small changes in its portfolio or business
strategy can sway financial markets and the financial industry.

It is also one of Japan’s largest companies, with 240,000
employees and annual revenue of 20 trillion yen.

With the profitability of its mail service likely to slide
due to increased use of e-mail and Japan’s shrinking population,
Japan Post’s financial services are considered the golden goose.

Currently, the group has one stock-holding company and four
subsidiary businesses focusing on banking, insurance, deliveries
and post office services.

WHAT IS ITS INVESTMENT PORTFOLIO LIKE?

About three-quarters of the funds of its two financial arms
is invested in Japanese government bonds, making the group the
largest single JGB holder with about 33 percent of the market.

Most of the remainder goes to other bonds and loans, and it
holds a very small amount of shares and foreign currency (Read more about trading foreign currency. assets.

But a government report has said it is unrealistic for the
behemoth to make a big change to its portfolio in a short time.

Japan Post could start reducing its JGB holdings in the
future but it will likely move very cautiously as selling JGBs
could rattle the market when the national debt is nearing 200
percent of gross domestic product.

Banking Minister Shizuka Kamei has said that he wants Japan
Post to diversify and that it could buy more U.S. Treasuries, but
he has also said that its money is important for the stability of
the domestic bond market.

Japan Post tried to expand its lending business after the
government began its 10-year privatisation process in 2007, but
its efforts fell through and it continued to buy JGBs.

In the short-term, the privatisation plan is unlikely to have
any impact on its investment strategy. However, the longer-term
outlook is unclear as much would depend on how much control the
government retains.

SO WILL THE GOVT PRIVATISE IT?

Not as fully as envisaged by the former Liberal Democratic
Party government.

The LDP planned to spin off the two financial arms, Japan
Post Bank and Japan Post Insurance, and sell two-thirds of the
holding company by 2017.

A government guarantee on Japan Post deposits and insurance
was lifted, and a new management team has taken charge.

Prime Minister Yukio Hatoyama, whose Democratic Party ousted
the LDP in an election last August, froze the privatisation on
the grounds that it ignored the needs of consumers.

The government plans to merge deliveries and post office
services into the parent company and sell shares in it as well as
in its two financial subsidiaries — Japan Post Bank and Japan
Post Insurance.

Hatoyama’s party is considering selling possibly up to
two-thirds of the shares in the three firms to list them on stock
exchanges. By retaining one-third of the shares, it would allow
the government to veto any major changes.

But the People’s New Party (PNP), a tiny coalition partner
that has strong backing from local post office chiefs, is
reluctant and has called for the government to retain stake of 50
percent or more.

Kamei, who heads the PNP, has said the government will make
its decision by March.

HOW WILL JAPAN’S FINANCIAL INDUSTRY BE AFFECTED?

With the privatisation plans still up in the air, the main
concern for the financial industry at the moment is whether the
government raises the limit on deposits.

Japan Post Bank has long had a limit of 10 million yen per
person. The government could raise that to support Japan Post but
it would draw heavy criticism from private banks, which complain
that Japan Post still enjoys an implicit government guarantee.
($1=88.72 Yen)

Investing Advice
(Reporting by Hideyuki Sano; Editing by Kazunori Takada)

REFILE-Q+A-What’s expected in Japan Post privatisation plan?