Japan blocks TCI attempt to boost J-Power stake

TOKYO, May 13 (Reuters) - The Japanese government ordered British activist fund TCI not to boost its stake in electricity wholesaler J-Power , the first time the state has blocked a foreign investor on national security grounds.

The stand-off between The Children's Investment Fund (TCI) and the government over J-Power has been closely watched as a test for how open the world's second-largest economy is to foreign investment.

The government last month rejected TCI's request to allow it to raise its stake in J-Power to 20 percent from 9.9 percent, which would cost it about $617 million at the current market price, citing the potential threat to national security and a disruption to the power supply.

Its decision on Tuesday upgrades its stance to an order and was widely expected.

"Our concern about stable electricity supply never went away. That was our biggest concern," said Keiichi Kawakami, director at the Ministry of Economy, Trade and Industry, adding TCI had until July 14 to appeal.

"The important thing is that TCI respects this order," he said.

Kawakami said Japan is open for direct investment from foreigners.

There have been 760 cases in the past three years where foreign investors had to seek approval for investment in Japan under its foreign exchange laws, of which all were approved within 30 days, he added.

Japan requires foreign investors to seek approval to buy more than 10 percent of a company deemed vital to its security, and J-Power fell under review because of its role in providing electricity to the public and its plans to build a nuclear power plant.

Government officials have said they were concerned the short-term outlook of an investor such as TCI could run counter to the public's best interest when planning investments in Japan's power network.

TCI, which has been urging J-Power to boost shareholder returns and to appoint external board members, has criticised Japan for a lack of transparency and has said it might take the government to court if its bid is blocked.

"In effect, the government is picking and choosing shareholders for J-Power," John Ho, director of The Children's Investment Management (Asia) Ltd, said in an e-mailed statement on Tuesday.

"It discriminates against legitimate shareholders who seek to improve broken corporate governance practices, such as cross-shareholdings."

J-Power was fully privatised in 2004 after the government and regional electricity power generators sold their stakes. (Editing by David Hulmes)

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