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17 April 2008 - An advisory panel to the Japanese government has rejected the proposal from The Children's Investment Fund, a UK-based hedge fund, to raise its stake in a major electricity company, citing risks to public order.
The move to stop the hedge fund from raising its stake in J-Power, Japan's largest electricity wholesaler, from 9.9 per cent to up to 20 per cent, is the first ever rejection coming under a law that requires government approval to raise foreign stakes to above ten per cent in companies in sectors that are deemed sensitive, such as utilities, broadcasting and weapons manufacturing.
According to the report by Associated Press, the standoff with the fund is raising questions about how smoothly Japan has adapted to its growing need to open its markets to foreign investment.
Foreign investors have been blocked in high-profile takeover attempts recently, fueling fears that overseas investors will be discouraged when the country sorely needs new capital to keep its modest growth going.
Ministry officials said the fund could control decisions at J-Power that could, in turn, hurt Japan's overall energy policies, including a key nuclear power plant project.
J-Power has plans to build the plant, in Oma, in northern Japan, to begin commercial operation by 2012, which will use MOX fuel, a uranium-plutonium mixture including recycled plutonium.
If such plans don't go as scheduled, that could endanger the operation of a plutonium reprocessing plant, in turn hurting Japan's other nuclear power plants that are counting on the plutonium supply.
As a resource-poor nation that imports all its oil, Japan has made reducing dependence on energy imports a pillar of its energy policy. The country currently relies on nuclear plants for a third of its energy needs.
Japan is expected to recommend the fund to drop its plan to buy more J-Power shares. The fund has 10 days to respond. If it fails to abandon its attempt, the government will then issue an order.
According to Associated Press, The Children's Investment Fund was not available for comment. However, Kyodo News reported it had offered to restrict its voting rights if allowed to raise its stake in J-Power.
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