Foreign firms could buy into Japan’s Privatised Postal Entities

The government has concluded that it will be difficult under World Trade Organisation rules for it to legally regulate foreign ownership in the postal savings bank and postal life insurance company due to be created in April 2007 as a result of privatising Japan Post, government sources said.

WTO rules stipulate that free cross-border investment activities should be guaranteed, in principle, for service companies and other businesses.

The rules, however, allow national governments to protect their interests by legally regulating the percentage of foreign holdings in certain types of businesses, such as airlines and broadcasting firms, as well as other operations directly run by governments.

Japan and other industrialised nations do not include service firms, including financial institutions, among the businesses that should be protected against foreign capital.

This means that when the postal holding company sells off government stock in the postal bank and insurance firm to achieve their complete privatisation, foreign investors will be among the possible buyers of the equities.

However, the two entities will be able to defend themselves from possible hostile takeover bids from outsiders, including foreign investors, under legislation the government submitted to the Diet on Tuesday.

If enacted, the bill will make it easier for companies to take defensive measures, including “poison pills” designed to dilute an acquiring firm’s voting rights and “gold shares” distributed to friendly investors to give them veto power at shareholders meetings.