Chinese group to take control of Japan Display after 2.1 billion bailout

A Chinese-Taiwanese group will take control of the Japanese supplier Apple Display Japan Display after injecting funds in a 232 billion yen ($ 2.1 billion) bailout package for the panel maker display in difficulty.

The move comes after the previous publicly funded bailouts did not allow the company to reduce its dependence on Apple, whose slowdown in sales was due to the fact that the company was not able to sell it. iPhone has seriously harmed Japan Display.

The agreement will enable Japan Display's largest shareholders, with a 49.8 percent stake, to replace the Japanese-backed INCJ fund and effectively end the government's efforts to keep the latest display manufacturer inside out of foreign reach.

The group of buyers, which includes the Taiwanese flat screen maker TPK Holding and the Chinese investment company Harvest Group, will inject up to 80 billion yen in Japan Display in buying stocks and bonds.

INCJ will also join the bailout by accepting a 75 billion yen preferred share swap and extending privileged loans worth 77 billion yen. After the transaction, its stake will increase from 25.3% to 12.7%.

The deal could potentially be the subject of a national security review in the United States at a time when Washington is intensifying its review of Chinese investment in the United States.

Japan Display has a subsidiary in San Jose, a US company that could award the US Foreign Investment Commission (CFIUS) jurisdiction over this transaction.

Screens may not necessarily be critical export-controlled technologies, but some of Japan Display's technologies, such as fingerprint sensors, could pose a national security challenge, said Nancy Fischer and Matthew Rabinowitz, respectively partner and senior partner of the American firm Pillsbury. .

Minoru Kikuoka, head of Japan Display's financial division, told reporters at a briefing that company counsel had said a CFIUS file would not be needed. CFIUS, however, retains its undetermined jurisdiction to apply for a deposit and revise the transaction, even after closing.

The bailout comes as sales of new iPhone models (many of which use OLED displays) have left the new factory of Japan Display that manufactures LCD screens running at half capacity.

Japan Display is expected to record a fifth consecutive year of net losses in the year ending this month, as disappointing sales of Apple's iPhone XR, the only model with an LCD, have wiped out all the hopes of a turnaround.

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

Kikuoka said at the briefing, without naming Apple, that Japan Display still owed about 100 billion yen to his client. The US tech giant had to bear most of the $ 1.5 billion construction costs for a new LCD factory three years ago.

"We discussed with our client, including this (repayment) issue, before reaching an agreement," said Kikuoka.

Japan Display and Harvest Tech, part of the takeover group, plan to jointly produce OLED panels, used in high-end iPhones, announced Japan Display.

Reuters announced earlier this month that Japan Display would begin providing OLED displays to the Apple Watch later this year.

Japan Display was established in 2012 by combining the LCD activities of Hitachi Ltd, Toshiba Corp. and Sony Corp. under a government negotiated agreement.

It was made public in March 2014 and was worth more than 400 billion yen. It is now worth 67 billion yen.

© (c) Copyright Thomson Reuters 2019.

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