Japan protests Putin’s takeover of Japan Tobacco assets

Russian President Vladimir Putin on Thursday, Nov. 5, signed a decree placing the Russian assets of Japan Tobacco International under the temporary administration of a Russian company, Reuters reported. Tokyo lodged a protest on Friday and demanded the order be withdrawn. JTI is the international arm of Japan Tobacco. The move makes it the latest foreign company to lose control of its operations in Russia, and it adds to a sharp decline in relations between Japan and Russia.reuters.com

What the decree covers

The decree hands JTI's stakes in four Russian companies, Donskoy Tabak, Petro, JTI Yelets and Kres Neva, to a firm called JSC Industrial Assets, according to Interfax. Interfax said the decree gives no details that would show which registered company of that name will run the business. It also said this is the first time the mechanism has been used against a tobacco company. The plants are in St. Petersburg, Rostov-on-Don, and the Leningrad and Lipetsk regions, NHK reported. JTI employs about 4,000 people in Russia, The Japan Times reported.japantimes.co.jp+2

Russia's state news agency TASS said the order rests on an April 2023 decree that lets Moscow take over assets owned by entities from "unfriendly" countries. A company under this system keeps legal ownership but in practice loses management control, Jiji Press noted.tass.com+1

The stakes for the company are large. Russia brings in about 10% of the group's revenue and roughly 25% of its operating profit, The Straits Times reported. SMBC Nikko analyst Tsukasa Furuta estimated the company holds ¥100 billion to ¥200 billion in cash and deposits in Russia that could become trapped there, according to Bloomberg. Its shares did not trade in Tokyo on Friday morning and were set to fall by the daily limit. Japan's Finance Ministry owns 37.55% of the company, The Japan Times reported.business-standard.com+2

Tokyo's response

"We have lodged a protest with the Russian government and urged it to take immediate action, such as revoking the measures," Trade Minister Ryosei Akazawa said on Friday, according to Bloomberg. He said Tokyo had "been on our guard" after earlier seizures of Western companies' assets. Chief Cabinet Secretary Minoru Kihara said Japanese officials who are visiting Russia had protested to Moscow, and that a Foreign Ministry official had made the same demand to Russia's ambassador, NHK reported. JTI said it was "assessing the situation and our options, prioritising our stakeholders, most notably our employees," The Straits Times reported.www3.nhk.or.jp+2

A widening crackdown

The Kremlin put the Russian assets of Nestlé and Auchan under temporary management in September, Bloomberg reported. Western businesses that went through this process have later been sold to Russian buyers at steep discounts, NHK said, citing the Associated Press.business-standard.com+1

The seizure follows Putin's August visit to Etorofu, one of the Russian-held islands that Japan claims. It also comes after Russia detained Hokkaido Shimbun journalist Yuki Imai in October on espionage charges, The Japan Times reported. Temple University professor James Brown said Japan's funding for a NATO program that buys U.S. weapons for Ukraine "placed Japan in a different category" in Moscow's eyes, according to Bloomberg.japantimes.co.jp+1