Russian President Vladimir Putin has ordered that four manufacturing subsidiaries of Japan Tobacco Inc. (JT), which produces the 'Mebius' brand (formerly Mild Seven), be placed under temporary management by Russian companies. While JT remains the owner, the operations will now be managed by Russian entities. The Russian business represents about 25% of JT's adjusted operating profit, raising concerns about potential impacts on the company's performance. The Japanese government has demanded an immediate withdrawal of this action.
According to the Nihon Keizai Shimbun (Nikkei) on November 6, President Putin signed a decree the previous day transferring the management of four manufacturing subsidiaries, including 'JTI Donskoy Tabak,' which oversees JT International's (JTI) Russian operations, to temporary Russian management. The decree was published on the Russian government portal the same afternoon, but no reasons for the action were provided.
Japanese Chief Cabinet Secretary Minoru Kihara stated at a press conference on November 6 that the government has demanded Russia immediately retract this measure. Officials from the Ministry of Economy, Trade and Industry and the Ministry of Foreign Affairs, who are currently visiting Russia, have lodged protests locally, and the European Affairs Director of the Foreign Ministry has also called on the Russian ambassador in Japan to demand a retraction.
JT confirmed on the same day that the four manufacturing subsidiaries are now under temporary management as per the Russian presidential decree. The company is assessing the specifics and potential impacts on the group while considering its response, promising to disclose any significant developments promptly.
Last year, JT held a 37% market share in the Russian tobacco market, making it the leader. Although the Russian business accounts for only about 10% of the group's total revenue, it contributes approximately 25% to adjusted operating profit. The company had anticipated a similar proportion for this year. Prolonged temporary management could affect the group's overall performance.
According to the Yomiuri Shimbun, JTI announced in 2022 that it would halt new investments in Russia following the country's invasion of Ukraine, but it has continued local production and sales.
The stock market reacted immediately. On November 6, sell orders reflecting concerns over potential losses from the Russian business flooded the Tokyo Stock Exchange. The stock price plummeted by 1,500 yen (19.3%) to the lower limit of 6,269 yen, and no trades were executed by the end of the morning session.
Nomura Securities noted in an investor report that the future of JT's Russian operations is currently unclear, but based on past cases, there is a risk that the company may not regain control and return to its previous state. The impact on cash flow and the 75% dividend payout ratio should also be considered.
Temporary management has been implemented by Russia based on a presidential decree from 2023 targeting assets of 'unfriendly' companies subjected to sanctions. According to TASS, as of September, over 130 companies, primarily European, were affected. President Putin explained in October that this measure was a response to the seizure of Russian corporate assets by European nations. The Russian government has indicated that it may return management rights in the future.
However, some companies have experienced significant losses or asset sales following temporary management. Danish brewer Carlsberg reflected substantial impairment losses on its Russian operations after its local subsidiary was placed under temporary management in 2023. French food company Danone also became a temporary management target that year, recording a loss of 1.2 billion euros (approximately 1.8 trillion won) and selling its business to a Russian company after management was lifted in 2024.
Japanese companies have previously faced similar measures. In February 2024, a Russian factory owned by DMG Mori Seiki's German subsidiary was placed under temporary management, having ceased production following the invasion. There are still a significant number of Japanese companies remaining in Russia. According to the Ministry of Economy, Trade and Industry, the number of Japanese firms maintaining a presence in Russia has decreased to about two-thirds of pre-invasion levels, but still exceeds 100.
As of the end of June, the Japanese government, through the Finance Minister, holds a 37.55% stake in JT. Finance Minister Satsuki Katayama stated on November 6, "We will closely monitor the situation in coordination with relevant ministries and JT and respond appropriately."
Meanwhile, Nikkei analyzed that it is highly likely that the Putin regime, which has reacted against Japan's sanctions on Russia and support for Ukraine, has taken this action to pressure Japanese companies to induce a change in the Japanese government's policy. The Federal Security Service (FSB) of Russia arrested a journalist from the Hokkaido Shimbun on espionage charges in October, with no evidence presented for the allegations, and the journalist remains detained.
* This article has been translated by AI.
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