British fund challenges Japan over blocked J-Power bid
TOKYO (AFP) — A British activist hedge fund on Friday rejected Japan's request for it to withdraw a plan to double its stake in the country's top power wholesaler on the grounds of national security.
The Children's Investment Fund said it was rejecting the government's "recommendation" last week that it should desist from raising its stake in Electric Power Development Co, or J-Power, to as much as 20 percent.
"This outcome was pre-determined" to protect vested interests and the company's management, said John Ho, the head of the fund's Asian operations.
He said it was "wrong to use national security and public order as a pretext to choose shareholders," predicting the move would mean higher electricity prices.
"This is a real national security threat," he told a press conference here.
The government said last week that if the fund did not comply with its recommendation, then the next step would be a mandatory order.
Ho said the fund would wait for Tokyo's next move. It submitted a letter earlier this week to the British government asking it to investigate Japan's "illogical" decision.
He said the British government had promised to "look at the matter seriously" following the request from the fund.
Japan's foreign exchange and trade law requires overseas investors to secure government approval before acquiring a stake of 10 percent or more in a company deemed vital for national security and the maintenance of public order.
It is the first time that Japan, which has virtually no natural energy resources of its own, has invoked the law to block a foreign investment.
But it is not the only country that reserves the right to protect essential industries from foreign takeovers. The United States also has a foreign investment law which it says is aimed at ensuring national security.
The British fund, already the top shareholder in J-Power with a stake of 9.9 percent, wants J-Power to raise its dividend payout.
It challenged the government's view that it is a short-term investor whose bid could threaten stable energy supplies, saying the review process lacked transparency and was based on "erroneous information".
Ho said the government's position appeared to favour cross-shareholdings between companies.
"This implication takes Japan back 10 to 20 years in the capital market development," he said.
Hedge funds are still viewed with suspicion in the world's second largest economy.
The highest profile foreign fund operating in Japan, Steel Partners of the US, has suffered a series of setbacks in the country including a defeat in a legal battle that went all the way to the country's top court.
In February Tokyo shelved a proposal to restrict foreign ownership of airports amid concern that the move would undermine wider efforts to attract investment.
Visiting European Union Trade Commissioner Peter Mandelson on Monday urged Japan to open up to foreign investment, saying it was the most closed of the developed economies.
