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Business deals

Japan Display looks to secure $1bn bailout this week

Chinese-Taiwanese investors seek concessions from Apple in deal

Panel maker Japan Display Inc. appears headed for a fifth straight year of red ink covering the 12 months ended March 31. (Photo by Hideaki Ryugen)

TOKYO -- Japan Display is nearing a deal to secure over 110 billion yen ($991 million) in rescue funds from backers at home and abroad, the perennially ailing panel maker said Monday.

"This week the company is aiming to reach an agreement with certain parties that will lead to [financing of 60 billion yen to 80 billion yen] through the issuance of stock and bonds and a total capital increase of more than 110 billion yen," Japan Display, also known as JDI, said in a news release.

INCJ, the liquid crystal display specialist's biggest shareholder, will be responsible for the bulk of the lifeline. The Japanese public-private fund plans to refinance about 75 billion yen in JDI debt that it holds by converting the credit into preferred shares possessing no voting rights.

The remaining capital infusion of slightly more than 40 billion yen would come in exchange for common stock issued to a consortium of four mainland Chinese and Taiwanese investors. This portion of the infusion is part of an aid package of 60 billion yen to 80 billion yen that includes bonds with the right to subscribe to new JDI shares.

The arrangement would result in just under half of the voting rights in JDI being held by the consortium, which includes Taiwanese electronic component maker TPK Holding, Taiwanese financial house Fubon Group and China's Harvest Fund Management group.

One sticking point in the negotiations involves a contract JDI has signed with Apple, its largest client. The Chinese-Taiwanese consortium wants JDI to find a way to extend the repayment period for the remaining 100 billion yen borrowed from Apple to cover plant construction. The group also seeks a revision to stipulations granting Apple the right to seize production facilities if JDI's cash equivalents fall below a predetermined level.

Apple has indicated a willingness to accommodate some of these demands, while the consortium also appears to have compromised. But some on the latter side still seek further concessions, and those concerns are being ironed out between JDI and the consortium.

Hitachi, Toshiba and Sony merged their liquid crystal display operations to form JDI in 2012. But the manufacturer likely will post its fifth consecutive net loss for the full year ended Sunday, suffering from strong competition and the impact of lackluster iPhone sales.

News of the potential agreement sent JDI's share price soaring 16% at one point Monday to 80 yen, the best performance in about a month and a half. But the stock remains less than one-tenth of JDI's offer price when it floated in 2014.

Even if JDI and other parties agree to terms, the U.S. pressure campaign against China risks complicating a deal. For example, the Committee on Foreign Investment in the United States may recommend against Chinese interests gaining heavy influence over the Apple supplier.

JDI officials think the transaction will pass Washington's scrutiny. But a surprise veto by the committee blocked Lixil Group, a Japanese construction materials supplier, from selling an Italian subsidiary to Chinese peer Grandland Holdings. More recently, the U.S. watchdog has been delaying an approval of Toshiba's sale of its money-losing liquefied natural gas operation to China's ENN Ecological Holdings.

JDI had struggled to find outside backers for its turnaround plan first announced in August 2017. The company managed to raise 55 billion yen in March 2018 through a private placement with overseas institutional investors and by selling a plant to INCJ.

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