Explanator: How is the Japanese government related to the largest Russian cigarette manufacturer?

    Home / Business Economy / Explanator: How is the Japanese government related to the largest Russian cigarette manufacturer?

Explanator: How is the Japanese government related to the largest Russian cigarette manufacturer?

0

A smoker chooses a Japan Tobacco (JT) Inc. Mevius Lights cigarette in Tokyo, Japan, May 12, 2017. REUTERS / Issei Kato

Register now for FREE unlimited access to Reuters.com

TOKYO, April 7 (Reuters) – The Japanese government has cut banking and trade relations with Russia over Moscow’s invasion of Ukraine, but a tobacco company in which it owns a third of the shares is still operating there. bakes Winston and Camel brand cigarettes.

The government’s inaction towards Japan Tobacco Inc’s (2914.T) puts the administration in an awkward position as it raises sanctions.

Here’s what’s at stake:

Register now for FREE unlimited access to Reuters.com

WHY IS RUSSIA SO IMPORTANT TO TOBACCO JAPAN?

Japan’s population is decreasing and domestic smoking rates are decreasing, making overseas revenues increasingly important to Japan Tobacco (JT).

Russia, the fourth largest tobacco market in the world, is JT’s largest foreign market, generating approximately 12% of the group’s revenue and 20% of operating profit. JT has the largest market share in Russia with nearly 40%, with 4,000 employees across four factories, producing brands including Winston, Camel and Mevius, formerly known as Mild Seven.

HOW DID JT REACT TO THE INVASION OF UKRAINE BY RUSSIA?

JT said soon after the invasion that he stopped production at his factory in the central Ukrainian city of Kremenchuk, saying at the time that his 900 employees were safe.

Last month, the company said its Russian subsidiary would suspend investment, marketing, and the launch of a heated tobacco product. But he said production would continue, even if those activities could be suspended amid “unprecedented” challenges. to know more

Other Japanese companies are also adopting a “wait and see” approach. Trading companies Mitsui & Co (8031.T) and Mitsubishi Corp (8058.T) maintain stakes in a liquefied natural gas (LNG) project in Russia, of which Shell Plc (SHEL.L) has announced plans to exit . to know more

WHY IS THIS A POLITICAL HOT POTATO FOR THE GOVERNMENT?

Japan has joined the Group of Seven economies in a steady escalation of sanctions to try to pressure Russia to end hostilities.

But his position has come under criticism; on the one hand he says he is on the side of Ukraine, but on the other hand he controls a large company that does business in Russia and collects a large part of the profits from that company.

JT is one of Russia’s largest individual taxpayers, accounting for 1.4% of the nation’s total budget revenue in 2020, the company’s website says.

WHAT DOES IT MEAN FOR INVESTORS?

Shares of JT have fallen more than 5% since the invasion of Russia, which Moscow calls a special military operation, as the trade prospects in the region dim. The Nikkei benchmark index gained 5%.

The company’s shares have lagged behind the performance of the broader market over the past five years, but remain popular with investors for their large dividends. JT pays about 75% of profits compared to an average of 30% among other Japanese companies. This provides approximately 100 billion yen ($ 815 million) to the Japanese government each year, based on Reuters estimates over the past three years.

WHAT AFTER?

JT is the third largest tobacco seller in the world, and some analysts believe it will eventually have to get out of Russia as other big brands retire. Rivals British American Tobacco (BATS.L), Philip Morris International Inc (PM.N) and Imperial Brands (IMB.L) have announced their intention to leave the country. to know more

However, such a decision is not without risk. The company could face huge losses if Russia decides to seize its assets, so a less risky option would be to sell its assets to a Russian partner.

Even if JT were to stay, trade sanctions could disrupt its business, especially if it is unable to import tobacco leaves.

WHY IS JAPAN IN THE FIRST PLACE IN THE TOBACCO SECTOR?

JT is a historic company in the Japanese history of government-controlled tobacco and salt monopolies. The company operates a museum in Tokyo dedicated to the history of those products in Japan.

JT in its current form was founded in 1985, and although the government has reduced its stake over time, the Ministry of Finance has a mandate to hold at least one-third of its shares in a business that the government considers important for revenue. taxation and the wider economy.

Register now for FREE unlimited access to Reuters.com

Reporting by Rocky Swift: Editing by Neil Fullick

Our Standards: Thomson Reuters Trust Principles.

.

Leave a Reply

Your email address will not be published. Required fields are marked *