TOKYO Japanese companies cannot use a national security designation as a tool to thwart foreign takeovers, a senior Finance Ministry official said, pushing back at speculation Tokyo's foreign exchange act could be manipulated for protectionism.

The comments follow media reports retail giant Seven & i Holdings is seeking to be classified as "core" to national security under the Foreign Exchange and Foreign Trade Act (FEFTA) to fend off a buyout bid from Canada's Alimentation Couche-Tard.

The senior official, who declined to comment on individual deals, told Reuters the issue of "core" classification doesn't change the process of the government's security review in cases of foreign bids for companies designated as significant to Japan's economy or security.

Seven & i, with a market value of US$38 billion , is currently categorised in the Finance Ministry's classification list as a company that conducts "designated", not "core", businesses.

Businesses considered "core" are those deemed crucial for national security, including nuclear power, space and semiconductors.

Foreign entities face stricter requirements to notify the government in advance when attempting to acquire a stake in a company with a business classified as "core" than they do when targeting companies in "non-core" sectors.

But in the case of acquiring control in any so-called "designated business", a would-be buyer must file prior notification regardless of whether the target is "core" or "non-core", the official said.

The official added that the classification doesn't affect the degree of scrutiny during its review on national security, saying that the government "will examine whether the transaction would pose risks to national security."

The ministry's classification list regarding prior notification requirements is based on surveys of all listed companies. The classifications there "are not something that would need government approval," the official said.

The official declined to be named due to the sensitivity of the issue.

When asked about the reported pursuit of the "core" tag, Seven & i said it replied to the ministry's latest survey by the Aug 23 deadline detailing the company's current structure and businesses.

The survey is not related to Couche-Tard's buyout proposal, which the Japanese company revealed on Aug 19, Seven & i said.

Convenience stores, Seven & i's mainstay business, are not a designated sector that requires FEFTA review, but the group has wide-ranging businesses including financials and security.

Japan in 2008 blocked the London-based Children's Investment Fund from buying shares in Electric Power Development Co, known as J-Power. That's the only deal that has been rejected under the FEFTA, but there are cases where plans have been modified or withdrawn during reviews, according to the Finance Ministry.

  - Reuters