TCI Request For Bigger Power Co. Stake On The Ropes

Apr 16 2008 | 2:00am ET

The Japanese government appears set to block a British activist hedge fund’s bid to boost its stake in the country’s largest electric utility.

A government panel convened by Japan’s Finance Ministry unanimously recommended that The Children’s Investment Fund not be allowed to increase its 9.9% stake in Electric Power Development Co., known as J-Power. TCI had sought permission—required under Japanese law to acquire big stakes in companies critical to national security—to boost its stake to 20%.

The foreign capital subpanel of the Finance Ministry’s Council on Customs, Tariff, Foreign Exchange and Other Transactions said a bigger role for TCI at J-Power “may interrupt Japan’s public order.”

“J-Power’s 2,400 kilometer transmission cables are vital to Japan’s electricity supply security,” it said. “J-Power plans a nuclear power plant project, which is vital to the country’s nuclear policy.”

The panel also rejected a TCI proposal to separate the Oma nuclear plant to a state-run firm. The hedge fund had offered to forgo its voting rights on nuclear power issues in exchange for the increased stake.

“We can’t accept this proposal as Japan has just privatized J-Power,” Yoshino, the economics professor who heads of the subpanel, said. “Shifting back to state control contradicts what has taken place.”

The government has until mid-May to issue its decision. A rejection of TCI’s bid would be the first use of its powers to block such acquisitions; the government has approved 760 such applications in the past three years.

TCI does not seem likely to take a rejection quietly: It has asked the European Union to punish Japan’s “violation of free trade and investment between Europe and Japan” if its bid were rejected.

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