Japan has excluded Nomura Holdings from working on the government's sale of roughly $6 billion worth of Japan Tobacco shares, in a blow to Japan's largest broker as it grapples with an insider trading scandal.
The Ministry of Finance said in a statement on Monday it had chosen JPMorgan Chase & Co., Daiwa Securities, Goldman Sachs and Mizuho Securities as underwriters for the share sale by the world's third-largest cigarette company.
But it was the absence of Nomura, which dominates Japan's underwriting market with an unrivaled network of retail clients across the country, which caught the market's attention.
"This is the sort of deal that one would have expected Nomura to be a shoe-in for," said Makarim Salman, head of Japan financials research at Jefferies in Tokyo.
"Investors will start to worry whether there will be other such announcements on the horizon, particularly with Japan Airlines' IPO coming up."
The decision came after Nomura earlier this month acknowledged for the first time that its employees had leaked confidential information on three separate public share offerings in 2010, confirming the findings of regulators, which have been probing the matter for months.
The finance ministry is planning to cut the government's stake in Japan Tobacco to one-third from half to raise money to help fund reconstruction efforts in areas devastated by last year's earthquake and tsunami.
The deal will easily rank as one of the largest equity offerings in Japan this year and was actively sought by banks eager to gain a track record with the government, even though the fees are expected to be relatively small.
Japan Airlines Co., which has emerged from bankruptcy, is looking to relist its shares on the Tokyo Stock Exchange in mid-September, in an IPO worth about 600 to 700 billion yen, according to a source with knowledge of the matter. Nomura has been selected as a global coordinator for that IPO.
Nomura had been one of nine investment banks shortlisted earlier this month in the first round of bidding for the Japan Tobacco share sale.
SMBC Nikko Securities, which ranks as the No. 2 underwriter in Japan so far this year, was also excluded from the offering in Monday's announcement by the finance ministry.
The finance ministry has employed a new numeric scorecard for selecting underwriters for the Japan Tobacco offering. Among other factors, the scorecard put a lot of weight in the second round of bidding on the broker's strategy for selling Japan Tobacco shares, its proposed fee, and compliance.
These factors could explain why JPMorgan and Mizuho were selected for the first time as underwriters for a Japanese government share sale, while experienced brokerages such as Nikko and Nomura were left off the deal.
The ministry may also have weighed the risk that Nomura would be punished by the financial regulator, since that would disqualify it as an underwriter of state-owned shares.
"The selection is just part of the preparation for the sale and actual timing or size of the sale has not been decided," the ministry statement said.
Nomura declined to comment on Monday about its exclusion from the deal.
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