TOKYO -- Japan Display announced Thursday a deal for financial support from state-backed fund INCJ and key customer Apple, potentially salvaging a bailout by a Taiwanese-Chinese consortium that looked uncertain after the troubled manufacturer's results took a turn for the worse.
The display maker known as JDI will transfer its entire 27% stake in affiliate JOLED, a manufacturer of organic light-emitting diode panels, to top shareholder INCJ in exchange for having 44.7 billion yen ($409 million) in debt forgiven. Apple will give its largest supplier of liquid crystal displays more leeway on repaying money borrowed for factory construction, of which more than 100 billion yen had not yet been paid back at the end of March.
JDI had said April 12 that it would receive a lifeline of up to 80 billion yen from a consortium including Taiwanese electronic parts maker TPK Holding and China's Harvest group. But consortium members delayed a final decision as a decline in global smartphone sales dragged down JDI's panel sales. With no clear timeline emerging, the plan was on shaky ground.
JDI's talks with INCJ and Apple turned the situation around. Consortium members have informed the display maker that a decision will be made by June 14. JDI plans to put the arrangement and changes to its business structure to shareholders for approval at an extraordinary meeting as early as July and receive the capital by the end of 2019.
"For a while, we weren't sure how things would turn out, but it looks like it'll work out somehow," a JDI insider said with a sigh of relief.
While INCJ played a role in arranging the bailout, criticism that it was keeping a zombie company afloat had made the fund reluctant to provide further direct support. But players involved in the situation called on INCJ to offer financial assistance to ensure that the consortium did not back out. In addition to forgiving loans, it will exchange 102 billion yen of JDI's debt for preferred shares, up from the originally planned 75 billion yen.
Japan's Ministry of Economy, Trade and Industry, which oversees INCJ, had indicated that the JDI turnaround plan would center on its influential automotive display panel business and on JOLED, whose focus on newer OLEDs makes its growth prospects more promising. INCJ thus opted to take JDI's stake in the affiliate to offset a sizable chunk of its debt.
Apple, meanwhile, will relax the terms of JDI's debt repayment for the next two years and "sincerely discuss" boosting orders. The change in terms would free up cash for the panel maker, which is believed to have been paying back more than 5 billion yen each quarter.
Apple likely deemed helping JDI necessary to maintain a stable supply chain. The company is expected to begin ordering OLED displays for smartwatches within the year.
The agreement has allayed the uncertainty surrounding JDI for now, but the consortium could get cold feet again if an economic downturn further drags down the display maker's earnings. And with trade tensions between Beijing and Washington running high, how the Committee on Foreign Investment in the U.S. will respond to a part-Chinese consortium bailing out a key supplier of a top American tech company remains to be seen.
JDI also said Thursday that it is considering spinning off smartphone panel operations into a separate company by September. This would be intended to reduce the exposure of such areas as automotive displays to the risks posed by the volatility of the smartphone panel market.