Apple Supplier Japan Display to Come Under Control of Chinese-Taiwanese Group After $2.1 Billion Bailout

A Chinese-Taiwanese group will take control of Apple supplier Japan Display after pumping in funds as part of a JPY 232 billion ($2.1 billion or Rs. 14,323 crores) bailout plan for the troubled display panel maker.

The rescue comes after previous, publicly funded bailouts failed to help the company cut its dependence on Apple, whose slowing iPhone sales have badly hit Japan Display.

The deal will make the buyers Japan Display's biggest shareholders - with a 49.8 percent stake - replacing the Japanese government-backed INCJ fund and effectively ending the government's efforts to keep the last remaining domestic display maker out of foreign hands.

The buyer group, which includes Taiwanese flat screen maker TPK Holding and Chinese investment firm Harvest Group, will inject up to JPY 80 billion (roughly Rs. 4,939 crores) into Japan Display by buying shares and bonds.

INCJ will also join the bailout by accepting a debt-to-preferred equity swap totalling JPY 75 billion (roughly Rs. 4,630 crores) and extending senior loans worth JPY 77 billion (roughly Rs. 4,753 crores). After the deal its stake will fall to 12.7 percent from 25.3 percent.

The deal could potentially be subject to a US national security review at a time when Washington is stepping up its scrutiny on Chinese investment in the United States.

Japan Display has a subsidiary in San Jose, a US business that could give the Committee on Foreign Investment in the United States (CFIUS) jurisdiction over the deal.

Displays may not necessarily be critical technologies that are export controlled, but some of Japan Display's technologies such as fingerprint sensors could raise a national security concern, said Nancy Fischer and Matthew Rabinowitz, partner and senior associate, respectively, at U.S.-based law firm Pillsbury.

Minoru Kikuoka, Japan Display's finance division head, told reporters at a briefing that the company's legal advisors have said a CFIUS filing would not be necessary. CFIUS, however, retains indefinite jurisdiction to request a filing and review the transaction, even after it closes.

New beginnings
The bailout comes as sales of new iPhone models - many of which use newer organic light-emitting displays (OLED) - have left Japan Display's new factory that makes liquid crystal display (LCD) panels running at half capacity.

Japan Display expects to post its fifth straight year of net losses in the year ending this month, as disappointing sales of Apple's iPhone XR, the only model with an LCD screen, dashed hopes for a turnaround.

The Apple business accounted for more than half of Japan Display's revenue over the last four years.

Kikuoka said at the briefing, without naming Apple, that Japan Display still owes its client about 100 billion yen. The US tech giant fronted most of the $1.5 billion (roughly Rs. 10,374 crores) construction costs for a new LCD factory three years ago.

"We discussed with our client, including that (repayment) issue as well, before we reached the agreement," Kikuoka said.

Under the latest deal, Japan Display and Harvest Tech, part of the buyout group, are planning to jointly produce OLED panels, used in top-end iPhones, Japan Display said.

Reuters reported earlier this month that Japan Display will begin supplying OLED screens for the Apple Watch later this year.

Japan Display was formed in 2012 by combining the LCD businesses of Hitachi Ltd, Toshiba Corp and Sony Corp in a deal brokered by the government.

It went public in March 2014 and was worth more than JPY 400 billion (roughly Rs. 24,695 crores) then. It is now worth JPY 67 billion (roughly Rs. 4,136 crores).

© Thomson Reuters 2019