Japan rejects UK hedge fund utility offer

TOKYO, Japan (AP) -- Japan is rejecting a proposal from Britain's The Children's Investment Fund to raise its stake in a major electricity company, citing risks to public order, government officials said Wednesday.

The move to stop the London-based hedge fund from raising its stake in J-Power, Japan's largest electricity wholesaler, from 9.9 percent to up to 20 percent, is the first ever rejection coming under a law that requires government approval to raise foreign stakes to above 10 percent in companies in sensitive sectors such as utilities, broadcasting and weapons manufacturing.

The standoff with the fund is raising questions here about how smoothly Japan has adapted to its self-trumpeted growing needs 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 nation sorely needs new capital to keep its modest growth going.

Ministry officials, speaking on condition of anonymity customary for bureaucrats here, said the fund may control decisions at J-Power, whose full name is Electric Power Development Co., that could, in turn, hurt Japan's overall energy policies, including a key nuclear power plant project.

J-Power has plans to set up the plant, in Oma, Aomori prefecture in northern Japan, for running by 2012, that 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.

Japan is expected to recommend the fund to drop its plan to buy more J-Power shares as soon as Wednesday. The fund has 10 days to respond. If it fails to abandon its attempt, the government will then issue an order.

A government advisory panel rejected The Children's Investment Fund's proposal to own more of J-Power late Tuesday. "The proposal may disrupt the maintenance of public order," the panel said in a report.

Rahul Moodgal, head of investor relations and business development at The Children's Investment Fund, said in an e-mail, "We have no comments to make at all."

Other nations, including the U.S. and Great Britain, have ways to control stakes in companies considered critical to national security or energy needs.

But the latest issues highlights Japan's growing pains as it grapples with dealing with checks on foreign investors -- a relatively new issue here.

In the past three years, there were 763 cases of foreign investors raising stakes in sensitive sectors that required government approval, and all were approved, according to the trade ministry.

But in some areas, foreign investors have run into roadblocks.

Last year, Japan's Supreme Court rejected an appeal by U.S. investment fund Steel Partners -- one of the most visible funds aggressively investing in Japan -- to block a sauce-maker's takeover defense. That supported Bull-Dog Sauce Co.'s dilution of Steel Partners' stake to ward off its tender bid.

Steel Partners has also run into resistance in trying to raise its stake in Japanese beer maker Sapporo Holdings Ltd.

Although mergers and acquisitions have grown in recent decades, many companies still tend to be run by an insular group of managers that seek passive consensus from stakeholders. Critics say this nation has a long ways to go in strengthening shareholder rights.

J-Power was privatized in 2004 under a massive economic reform program to wrest the world's second-largest economy out of a decade-long stagnation.

As a resource-poor nation that imports all its oil, Japan has made reducing dependence on energy imports a pillar of its policy. Japan relies on nuclear plants for a third of its energy needs.

The Children's Investment Fund, founded by Chris Hohn in 2003, donates a part of its profits to one of Britain's largest charities for children. E-mail to a friend

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