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Politics

Insurance scandal delays Japan Post privatization by 5 years

Stock price wallows below threshold for successful float

Japan Post Holdings' stock price has dropped below the threshold needed for the government to raise 4 trillion yen for disaster relief. (Photo by Kaisuke Ota)

TOKYO -- The Japanese government has decided to extend the deadline to divest more Japan Post Holdings stock by five years, a move directly related to an insurance scandal within the group.

A law passed shortly after the 2011 earthquake and tsunami mandates the government to sell shares in the postal group by the fiscal year ending March 2023. The proceeds are to go toward disaster recovery.

But a bill to be submitted in the current legislative session seeks to extend the deadline to the fiscal year ending in March 2028.

The government plans to decrease its stake in Japan Post Holdings to just above one-third, and raise 4 trillion yen ($36.6 billion) in the process. The first two floats raised about 2.8 trillion yen combined, and the remaining 1.2 trillion yen was to be acquired through the last upcoming tranche.

But group company Japan Post Insurance was found last year to have engaged in improper insurance sales, including those that charged double premiums. The misconduct resulted in a suspension of policy sales and the resignation of three chief executives in the Japan Post group.

Japan Post Holdings said last week it will look into 220,000 more insurance contracts suspected of being problematic. The probe is expected to wrap up by June.

Japan Post Holdings' stock has plummeted in the wake of the scandal, closing at 1,009 yen on Thursday. A minimum price of 1,132 yen per share is needed to secure the 4 trillion-yen funding.

It is uncertain whether the delay will buy time for the stock price to recover. Japan Post Insurance has not been entirely free to develop new insurance products due to concerns about unfair competition versus the private sector. The same dynamic has hamstrung Japan Post Bank, the other group financial unit, from expanding operations.

Because the government still owns nearly 57% of Japan Post Holdings, the postal service will be constrained in implementing bold cost-cutting measures, such as rationalizing the post office network.

Furthermore, there are the losses sustained by investors who purchased Japan Post Insurance shares that went on the market last year. Daiwa Securities was the lead underwriter in that sale, and will serve in that capacity for the next Japan Post Holdings float as well.

In other words, Daiwa will have to broker the postal shares to more-or-less the same customers.

"It will probably be difficult to implement a large-scale sale while retail clients suffer losses," said a source at an internet brokerage, sharing a widely held view.

The government will also push back the sell-off of the Tokyo Metro to fiscal 2027 to resolve differences in how to proceed. The central government owns 53.4% of the subway operator while the Tokyo Metropolitan Government holds the rest.

The goal was to have both shareholders divest large stakes and raise 200 billion yen to fund disaster recovery efforts. But Tokyo intends to offload a smaller interest so that it can retain influence over the transit system. The central government has balked at that option since it goes against the spirit of privatization.

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