A widening probe of insider trading that has ensnared Japan's largest brokerage now also threatens to complicate a plan to raise as much as $6 billion to fund reconstruction efforts after the March 2011 earthquake, bankers and officials say. Japan's Ministry of Finance is in the process of selecting four underwriters to manage a stock offering for Japan Tobacco, the world's third largest cigarette company - a deal expected to rank as one of Japan's largest share sales in recent years. The deal also represents the first major Tokyo share offering since Japan's securities regulators began a formal investigation of insider trading at Nomura Holdings.
Nomura is Japan's largest brokerage, the market's lead underwriter and a dominant force with Japanese retail investors that would normally be expected to jostle for a lead spot in a signature deal like Japan Tobacco. But Nomura would be ruled out as an underwriter for the sale of the state-owned company if the insider trading probe results in penalties against it, officials say. The finance ministry plans to cut the government stake in Japan Tobacco to one third from around a half to raise cash for rebuilding the country's tsunami-ravaged northeast coast. Nomura declined comment on the Japan Tobacco share sale and whether its business might be affected by the investigation.
Twelve investment banks submitted their applications for the Japan Tobacco share sale by a Wednesday deadline, five of which were Japanese brokerages, people with direct knowledge of the process told Reuters. The ministry will shortlist 3-5 brokerages for sales of the stock in Japan and 4-6 foreign banks to handle overseas sales, officials say. A final decision on underwriters will be made by mid-June. If Nomura were excluded, it would pay a price in prestige. The Japan Tobacco deal is expected to generate underwriting fees of just 1 percent of the offering, but it would represent an opportunity to show the kind of marketing prowess that could be used to land other potential issuers, bankers say. Nomura has already been linked to insider trading in two large stock offerings.
In those stock cases, Nomura staff leaked information on sales of shares for Mizuho Financial Group Inc and oil explorer Inpex Corp prior to their announcement, according to regulators and people with knowledge of the case. Last week, the insider trading probe reached JP Morgan Chase & Co as the Wall Street bank was identified as the source of leaked confidential information regarding a planned share offering by Nippon Sheet Glass Co Ltd in 2010. Japan's Securities and Exchange Surveillance Commission has also asked the U.S. Securities and Exchange Commission (SEC) to investigate insider trading in a 2010 share offering by Tokyo Electric Power - a deal where Nomura was lead underwriter.
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