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Japanese Privatization: Buyer beware

Investors in Japan's privatized companies are getting worried about the government's attitude towards its former charges. Less than two years after thrashing out an agreement with a number of former state-owned companies about the extent of their pension liabilities, the government has issued a demand for a top-up payment. Several railway companies ­ some already privatized, others slated for privatization ­ have been asked to cough up ¥360 billion ($2.8 billion) by accepting an increase in their pre-privatization era pension obligations.

When the framework was set up to privatize Japan's railways in 1987, the government took onto its own books much of the mountain of debt the inefficient state-owned rail network had accumulated over the years. It broke the system up into seven leaner rail operating companies with moderately healthy balance sheets and began selling them in a series of public offerings.

In 1996, keen to find ways to shift the burden of a national debt now worth 100% of GDP, the government persuaded the rail companies to contribute ¥170 billion of the ¥1.2 trillion it needed for the public-sector rail workers' pension fund. Now the government is redefining liabilities to this underfunded pension scheme, demanding that the new companies take on additional liabilities totalling ¥360 billion.

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