By Makiko Yamazaki and Noriyuki Hirata
TOKYO (Reuters) - Japan Display Inc (T:6740) said it aims to clinch a deal this month for least 50 billion yen ($470 million) in vital funding, having had to scramble after an investment group suddenly pulled out of a bailout plan for the Apple Inc (O:AAPL) supplier.
Loss-making for the last five years and with its liabilities now exceeding assets, Japan Display desperately needs a capital injection.
For Apple, any collapse of Japan Display would hurt its ability to deliver competitive pricing for its new iPhone 11 base model which is $50 cheaper than last year's XR model. It might also force the U.S. firm to turn to rival suppliers for liquid crystal displays (LCD) and increase its reliance on Samsung (KS:005930) Display for organic light-emitting diode (OLED) screens.
Japan Display has said a major client, which sources with direct knowledge of the talks have said is Apple, intends to invest $200 million, double the amount it previously planned. Hong Kong-based Oasis Management will also contribute $150-180 million. A Japan Display supplier and other funds are also set take part.
"We are close to 50 billion and I believe we can cement the deal this month," new Chief Executive Minoru Kikuoka told Reuters in an interview.
The planned revised bailout deal is, however smaller than a previously announced plan for as much as 80 billion yen. Chinese investment firm Harvest Group pulled out of the deal last month, citing differences with other investors over corporate governance.
Kikuoka, who took the helm in September, said LCD screens are drawing renewed market interest, pointing to solid demand for affordable smartphones with low-cost displays.
Orders for LCD screens from a major customer have been "stronger than previously planned," Kikuoka said. The comment follows a recent Nikkei Asian Review report that Apple has asked suppliers to increase production of its iPhone 11 models by around 10%.
Although a late shift to OLED screens has cost it orders from Apple and is responsible for much of Japan Display's financial woes, the U.S. tech giant still accounted for about 60% of its revenues in the last financial year ended March.
Kikuoka said the company has started producing OLED screens. Sources have said Japan Display will produce OLED screens for the Apple Watch this year.
But venturing into mass-production of OLED panels for smartphones would require at least 200 billion yen ($1.9 billion) to convert an idle LCD plant, Kikuoka said, adding that would depend on whether it could find partners to shoulder that cost.
"We are not planning to make capital investments on our own for OLED," he said, adding that excessive capacity for LCD production has drained the company's balance sheet and that any discussions on OLED for smartphones would come after a bailout was in place.
Japan Display is also considering making its smartphone panel division into a separate company, possibly drawing on capital from external partners, a move that could help reduce the impact of smartphone market volatility on its earnings, Kikuoka said.
($1 = 106.8800 yen)