A tobacco giant that exhausted its inventory of small cigarette packets in anticipation of a ban threatened Thursday to take legal action against the Malaysian government for reportedly deciding to delay the prohibition.

The Malaysian affiliate of Philip Morris International voiced disappointment with what it called a "precipitous" decision that would be "a devastating blow not only to our business but to foreign investor confidence in Malaysia."

Tobacco companies in the Southeast Asian country have been phasing out parts of their inventory and manufacturing equipment in recent months ahead of a government ban on cigarette packets containing fewer than 20 cigarettes that was supposed to take effect June 1.

However, the financial newspaper The Edge reported Thursday that the government had decided to postpone the ban. The Malaysian Insider news website later quoted Health Minister Liow Tiong Lai as saying that authorities feared the ban would spark a surge in demand for illegally produced cigarettes.

Health Ministry officials said they could not immediately comment on the reports, and that Liow was traveling late Thursday and could not be contacted.

"In the absence of clarity surrounding this decision, (we) will have no choice but to evaluate all possible avenues, including legal recourse, to recover any losses the company may suffer," Richard Morgan, the managing director of Philip Morris in Malaysia, said in a statement.

"How can any corporation plan for its future and maintain its viability in an environment of such legal uncertainty, where decisions that are supposedly set in concrete can be overturned so rapidly and without any consultation?" the statement added.

The government had been planning the ban for years as part of efforts to curb smoking among young Malaysians who consider smaller cigarette packs more affordable. The Malaysian Insider quoted Liow as saying the government would make a final decision in "a few months" on when the ban might be enforced.

(Business Week, 27/05/2010)