Hedge fund TCI calls on ministers to impose trade sanctions on Japan

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The Independent Online

The hedge fund TCI has asked the British Government to impose trade sanctions on Japan, escalating its ongoing dispute with Tokyo over the electricity wholesaler J-Power.

The Children's Investment Fund, run by Chris-topher Hohn, has been blocked by the Japanese Government from doubling its stake in the company to 20 per cent on national security grounds.

TCI, whose 9.9 per cent stake in J-Power makes it the biggest shareholder, has been pushing the company to boost investor returns and increase dividends.

In a letter addressed to John Hutton, the Business Secretary, Digby Jones, the Trade and Investment minister, and Malcolm Wicks, the Energy minister, TCI says: "We request that the UK Government formally intervene and impose reciprocal trade and investment sanctions."

The letter was singed by Mr Hohn, who is TCI's managing partner.

TCI has already complained to the European Commission over Japan's actions and on Monday, Peter Mandelson, the Trade commissioner, criticised Japan, accusing the country of having taken advantage of overseas investment opportunities for decades while remaining a "a closed market" to foreigners wanting to move in.

He also called on Japan to justify its move, under a law requiring any foreign investor to secure approval for stakes of more than 10 per cent in sectors such as electrical power deemed important for national security. The block on TCI is the first time that the law has been used.

Yesterday, a spokesman for the Department of Business Enterprise and Regulatory Reform said: "As a government we encourage the free flow of investment. We haven't had the chance to study the letter but we will consider it."

The UK is highly unlikely unilaterally to impose sanctions on Japan, as requested by TCI, but could make representations on TCI's behalf and seek to apply political pressure on Japan to change its mind.

Tokyo has voiced concerns that TCI's plans could hit investment in power generation and adversely effect electricity supplies. But on Wednesday J-Power announced the formation of an advisory board "to provide meaningful advice regarding management issues" and plans to review its corporate governance, including the role of "external directors" with a view to implementing any chan-ges next year.

The company also said it would begin using return on assets (ROA) as a key management indicator "to enhance transparency to shareholders".

TCI's intervention has nonetheless put the spotlight on Japan's treatment of foreign investors.

The country ranked bottom in a league table of the world's major economies as destinations for foreign direct investment between 1997 and 2006, according to the OECD. Inbound FDI makes up just 3 per cent of the Japanese economy compared with 20 per cent in the European Union.

TCI's recent scalps include a key role in the break-up of the Dutch Bank ABN Amro and blocking Deutche Börse's attempt to buy the London Stock Exchange, which led to its chief executive, Werner Seifert, being ousted. However, it is not without critics who argue its short-term approach can damage companies.

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