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Japan Display IPO 1st fruit of INCJ's investment

TOKYO -- Japanese liquid crystal display maker Japan Display made its debut on the first section of the Tokyo Stock Exchange Wednesday, representing the first recovery of investment in effect by the government-backed Innovation Network Corporation of Japan founded nearly five years ago.


Japan Display President Shuichi Otsuka rings the bell at the TSE on March 19, the day of the firm's debut on the TSE first section.

    Japan Display was established in 2012 by integrating the LCD businesses for small and midsize devices, such as smartphones and tablets, of Sony, Toshiba and Hitachi. INCJ has supported the growth of the company as its biggest shareholder with an equity stake of 86%.

     Although the listing of Japan Display is a boon for INCJ, the investment fund's discernment is under scrutiny as none of many venture businesses it has invested in has made an initial public offering.

     Japan Display President Shuichi Otsuka said, with a smile, "This is our first victory," when he served as a guest bell ringer at the TSE shortly before noon on Wednesday.

     But top INCJ officials were probably happier than Otsuka about the firm's debut on the Tokyo bourse.

     For the IPO, INCJ sold nearly half of its shareholdings in Japan Display and recovered more than 160 billion yen ($1.56 billion) of investment. Proceeds from the share sale topped 70 billion yen.

     While INCJ has invested in more than 60 companies, Japan Display is virtually the first case of successful investment.

     Founded in 2009, INCJ has a capital of 280 billion put up approximately 95% by the government. It is tasked with supporting the consolidation of operations among big companies, as in the case of Japan Display, but also the growth of new firms with cutting-edge technologies needed for Japan's future. While INCJ has invested in 45 venture businesses, 27 of them are investments since last year.

     INCJ is actively pouring funds into venture businesses due to backing by the government's strategy for Japan's growth. It received a new capital infusion of 104 billion yen from the government last spring and is expecting an additional 20 billion yen this spring.

     In contrast with private venture capital companies which are usually required to show results of investment in three years or so, INCJ sets an investment period of five to seven years for each case.

     INCJ supports businesses "which private companies cannot invest in independently despite an impact of investment," said Yoshinori Komiya, a senior executive officer at the fund.

     Naturally, however, technologies INCJ invests in as innovative become commoditized, especially in highly competitive fields, along with the passage of years after its investment. Environments, which served as preconditions for INCJ's investment, also change rapidly.

     There are cases, therefore, in which businesses chosen by INCJ for investment have failed to grow as envisioned by the fund.

'Salted' cases

INCJ invested in Zephyr, a Tokyo-based maker of small wind power generators, its second investment since it was established in expectation that the devices would be widely used as base stations for mobile phones in emerging economies and power sources for homes in the U.S.

     But the generators have been rarely used as base stations for mobile phones overseas. "We couldn't find suitable locations" to make the use of small wind power generators profitable, said Zephyr President Tomoshige Tanaka.

     The company has been unable to pull out of the red on a pretax basis as actual sales have been between 200 million yen and 300 million yen per year since fiscal 2010 when INCJ invested in it.

     INCJ has poured a total of 1.55 billion yen into Zephyr, which has used most of the sum to cover marketing operations overseas and labor expenses, Tanaka said. But Zephyr has closed all overseas offices and cut its workforce to 15 from around 40. It has also reduced its capital to less than 90 million yen.

     While Zephyr has three board members, all but Tanaka are outside directors belonging to INCJ.

     "A private investor should immediately begin to recover invested funds once the collection of them is deemed impossible," a person familiar with venture businesses said. "INCJ has salted many deals under the name of long-term investment."

     Investment in venture businesses is accompanied by risks. Investors therefore need to be sensible enough to minimize losses, if any, by closely screening cases of investment in advance and accurately understanding business environments concerned.

     INCJ, which has financial resources totaling 2 trillion yen on the government's funds and credit facility, will remain in business in the coming 10 years. It will be no simple task for the fund to generate results from its venture business investments satisfactory to capital contributors, namely taxpayers, in the remaining period before its dissolution.

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