TOKYO -- Japan Display plans to procure about 55 billion yen ($517 million) through third-party share allocations and asset sales, it said Friday, scrambling for capital so it can supply screens for new iPhones.
The restructuring liquid crystal display maker plans to secure about 35 billion yen through private placements of newly issued shares. It expects to receive 30 billion yen from about 15 overseas institutional investors, with the largest stake -- worth 6 billion yen -- going to a Hong Kong investment manager. Nichia would invest the other 5 billion yen, granting the maker of light-emitting diodes for LCD panels a 3.5% stake on a voting-rights basis.
The remaining 20 billion yen would come from selling an Ishikawa Prefecture plant whose production has been halted to Japan Display's largest shareholder, the state-backed Innovation Network Corp. of Japan. The INCJ would then make an in-kind contribution of the plant to JOLED, a spinoff of Sony's and Panasonic's display businesses, which would use the facility as a hub for mass-producing medium to large organic light-emitting diode panels.
Apple is Japan Display's chief customer, and the LCD maker lost out on business due to the use of OLED screens in last year's iPhone X. Expecting the U.S. tech company to keep shifting toward OLEDs, the supplier began exploring capital partnerships to obtain the massive funds necessary to invest in producing the advanced tech.
However, the iPhone X has proven a flop, and Apple appears to be sticking with LCDs for some models due out this fall, leaving Japan Display in need of working capital to secure inventory and production capacity to supply those screens.
While the planned injection would suffice for Japan Display's immediate capital needs, fundamental problems regarding its core business would remain. "Raising funds won't change the harsh business environment" Japan Display faces, said Mitsushige Akino at Ichiyoshi Asset Management.
The market reacted harshly to news of the fundraising efforts Friday, with the company's shares falling to 4% below the previous day's close at one point before finishing down 1.5%, while the Nikkei Stock Average closed up 1.4%.
The company's free cash flow -- a measure of financial health -- was on a negative streak through the year ended March 2017, and is 50 billion yen in the red for the nine months through December 2017. This is because the company continues to invest in development and other forward-looking concerns even as its core operations lose money.
Apple may decide at any point to move back toward OLED screens, leaving Japan Display in a precarious position. It was negotiating with Chinese panel makers on capital partnerships, but the talks appeared bumpy.
The Japanese company is not even safe in its core LCD business, with Chinese rivals such as BOE Technology Group and Tianma Microelectronics rapidly gaining market share. Japan Display held onto its role as the global market leader in 2017, but the gap is quickly closing. Scraping together the investment capital necessary to prepare for shifts in the market will be a challenge.