Japan Tobacco considers sale of Russian operations

2/2 © Reuters. FILE PHOTO: Japan Tobacco's cigarette products are pictured in Tokyo, Japan January 17, 2018. REUTERS/Kim Kyung-Hoon 2/2

By Rocky Swift

TOKYO (Reuters) -Japan Tobacco (JT) said on Thursday it was considering selling its Russian operations after suspending investment and marketing activities in the country last month following Moscow's invasion of Ukraine.

The announcement by JT, market leader in Russia, came after it said in March it would continue manufacturing in the country, where it has four factories and 4,000 employees.

That announcement drew criticism after many global brands pulled out over the invasion of Ukraine and governments, including Japan, levied heavy sanctions against Moscow. Russia calls its action in Ukraine a "special operation".

Japan Tobacco (OTC:JAPAF)'s move to explore a sale of its Russia operations makes it the last major international cigarette-maker to speak publicly about potentially leaving Russia, the world's fourth-biggest cigarette market.

Marlboro owner Philip Morris , the No.2 biggest player in the country, said last month that it plans to scale down manufacturing operations in Russia and that it is working on options to exit the market.

UK-based companies British American Tobacco (NYSE:BTI) and Imperial Brands (OTC:IMBBY) have both said they are looking for third parties to which they can transfer their Russian businesses. SNS Group of Companies, BAT (LON:BATS)'s distributor in the country, told Reuters last month that it is in talks with BAT to take over the unit.

One option JT is considering is to transfer its Russian business to a third party, allowing operations and employment there to go on, Deputy Chief Executive Koji Shimayoshi told analysts.

A company spokesperson separately said he could not comment on potential buyers for the business. In the current fiscal year, the company estimated Russia would contribute about 8% of JT's group revenue and 15% of adjusted operating profit.

Japan's Ministry of Finance is the biggest shareholder in JT, holding one-third of its shares, which deliver about $1 billion in dividend revenue to the government each year.

JT and American competitor Philip Morris International (NYSE:PM) each hold about 20% stakes in the holding company of Russian tobacco distributor TC Megapolis JSC. Megapolis was, until recently, run by a Russian billionaire sanctioned by the European Union for links to weapons production, a Reuters investigation showed.

JT also reported first-quarter results, which saw operating profit increase 11% to 178 billion yen ($1.37 billion).