Japan Tobacco Shares Fail to Trade as Russia Takes Over All Its Local Entities

The order Putin issued on Thursday covered the Russian manufacturing businesses of Japan Tobacco International, the group's Geneva-based international arm, which has factories in St Petersburg, the Leningrad region, Rostov-on-Don and the Lipetsk region. Three more companies have since been added, Reuters reported, bringing all of the group's local entities under the same regime. JT said its Russian business continues to operate and that it is assessing the potential impact on its financial results.

The exposure is large. Russia generates about a quarter of JT's adjusted group operating profit and roughly 10% of its revenue, according to Reuters, making it one of the company's most profitable overseas markets. The shares fell by their 1,500-yen daily limit on Friday to close at 6,269 yen, a 19% drop, and the last bid on Monday was 5,469 yen. The Japanese government owns about 37% of the company.

JTI is Russia's largest cigarette maker, with roughly 40% of the market and about 4,000 employees, according to Euronews. Its brands there include Winston, Camel, LD, Sobranie and Glamour. The group has invested $4.6 billion in Russia over more than 20 years, according to a company profile cited by Euronews, which reported that the operations are being handed to AO Promyshlennye aktivy, a state-linked holding company.

Temporary administration is a mechanism Moscow created in 2023 for assets tied to countries it considers unfriendly. The Kremlin presents it as a response to the sanctions the West imposed after Russia's 2022 invasion of Ukraine. Putin said on October 1 that the mechanism lets Russia prepare retaliation against any future nationalisation of Russian assets abroad, Euronews reported, and he left open the possibility of returning control to former owners if conditions improved.

The takeover is the first time a major international tobacco company has had its Russian business placed under this kind of management, according to the industry publication 2Firsts. The Japanese government has protested, the Associated Press reported.

The immediate question for shareholders is whether JT can still count on the profits its Russian factories generate, or get them out of the country. The company has not quantified the hit. It said it is still gathering information and considering its response.