INSURANCE: DELAY OF JAPAN POST IPO LIKELY

UNCLAS TOKYO 002079 SIPDIS USTR FOR AUSTR CUTLER, BEEMAN, LEE, AND HOLLOWAY NSC FOR LOI, RUSSELL E.O. 12958: N/A TAGS: EFIN ECON PGOV JA SUBJECT: INSURANCE: DELAY OF JAPAN POST IPO LIKELY ¶1. (SBU) Japan Post watchers are trying to predict what will happen to the privatization process as the Democratic Party of Japan (DPJ) forms a coalition government with the People's New Party (PNP),which strongly opposes the postal privatization process, and the Social Democratic Party. The coalition announced it would introduce a bill soon after taking power to halt the sale of stock held by Japan Post Group; under current law, the initial public offering (IPO) must occur by 2011 at the latest, or if possible 2010. As a member of the coalition government, PNP President Shizuka Kamei is up for a cabinet-level position. Many believe he is likely to be appointed Minister of Internal Affairs and Communications (MIC) because of this ministry's influence on postal matters and because of the single-issue focus of the PNP. INVESTMENT BANKERS BELIEVE PRIVATIZATION WILL CONTINUE ¶2. (SBU) Japan-based investment bankers, Morgan Stanley's Robert Feldman, Credit Suisse's Hiromichi Shirakawa, and CLSA's David Cotterchio, in a conversation with the DCM on September 8 predicted that Japan Post privatization would continue, but that the DPJ would delay the IPO. Feldman argued the DPJ will not want to unwind the privatization process because Japan Post employees are now private sector employees and thus free of restrictions from engaging in political activities (as of October 1, 2007, the official date of privatization, Japan Post Holdings had over 240,000 employees on a consolidated basis). With an eye on winning the Upper House election in 2010, DPJ kingmaker and Party Secretary-General Ichiro Ozawa worked to mobilize these workers in support of the DPJ election machine. ¶3. (SBU) Cotterchio agreed, adding that the DPJ will make efforts to consolidate the post office (Japan Post Network) and mail delivery (Japan Post Service) parts of the Japan Post Holding Company into one firm so that 90 percent of their employees fall under one company. This restructuring will result in Japan Post effectively having three firms, which Cotterchio believes could be more efficient. Feldman agreed with Cotterchio that the reintegration of Japan Post Network and Japan Post Service is likely, saying that this would allow for easier cross-subsidization of the inefficient Japan Post Network. He also believes the coalition government will seek to remove the controversial head of Japan Post Holdings Yoshifumi Nishikawa. ¶3. (SBU) Shirakawa agreed with both analyses, asserting the DPJ stance to postpone the IPO is a concession to the PNP and its anti-privatization policy. He believes the DPJ will accommodate the PNP until the Upper House elections in June 2010, when, if results go according to the DPJ's plan, the party will win a majority in the election. This will enable the DPJ to jettison its coalition partners and their policy objective of rolling back Japan Post privatization. The investment bankers said they have all separately heard the rumor that PNP President Kamei is likely to be appointed MIC Minister, a concern for privatization supporters. All three regret the negative effect halting privatization would have and potential investors. MINISTER NIKAI: "PRIVATIZATION CAN'T BE WALKED BACK" ¶4. (SBU) METI Minister Toshihiro Nikai, Prime Minister Koizumi's Postal Privatization czar in 2005, told the Ambassador on September 7 the DPJ can't "walk back" privatization. He contends the process Prime Minister Koizumi started is too far along and that the DPJ, which will delay the IPO, has no intention of reversing course. It is only one "small" political party that is opposed to privatization and is not a large enough part of the DPJ coalition to reverse the policy, he said. ROOS