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Struggling chip maker Elpida Memory Inc. secured government approval Tuesday to tap ¥30 billion in emergency investment under a new financial aid program.

Elpida, the world’s third-largest maker of dynamic random access memory chips, will also get bank loans and additional investment, including from its Taiwanese partner. In total, the company is expected to receive ¥160 billion in fresh funds.

The manufacturer, which has experienced a group net loss for two straight years on tumbling chip prices amid the global recession, is the program’s first beneficiary.

The move comes despite warnings that taxpayers will have to foot large bills if companies that the government helps out go bankrupt.

“We decided the injection of public funds would be best for us” to secure cash to invest in cutting-edge chip technology, Elpida President Yukio Sakamoto Sakamoto said at a news conference. “If we lost our investment capacity, we would be thrown out of the DRAM competition.”

The Ministry of Economy, Trade and Industry said Elpida will get ¥30 billion in de facto public funds via the Development Bank of Japan, which will also lend the chip maker some ¥10 billion.

Elpida will also receive some ¥100 billion in syndicated loans from commercial banks, including the Bank of Tokyo-Mitsubishi UFJ, and about ¥20 billion in investment from Taiwan Memory Co. That company, set up by the Taiwanese government, has agreed to a technology partnership with Elpida.

Sakamoto said Taiwan Memory is seeking a roughly 10 percent stake in Elpida, which may buy a stake in the Taiwanese firm.

The emergency program, part of Prime Minister Taro Aso’s economic stimulus packages, is intended to improve the financial health of companies widely regarded as strategically important to Japan.

Elpida is Japan’s sole maker of DRAM, which is used mainly in mobile phones and personal computers. The government has determined that Elpida’s failure could have a negative impact on the wider economy, including on manufacturers that rely on the chip maker for crucial components, METI chief Toshihiro Nikai said at a news conference.

“Elpida faces a very tough environment,” Nikai said. “DRAM is widely used by major industries in our country, and securing a stable supply will benefit people’s lives as well as economic and industrial activity.”

Elpida will use the newly invested money and loans to upgrade its production equipment, Nikai said.

Under the program, Elpida is required to compile and implement a rehabilitation plan and to report its progress to METI at least once a quarter.

Through its investment, the DBJ will acquire preferred shares in Elpida. The government-affiliated bank will withdraw its investment depending on the progress of the rehabilitation plan.

In the event of the failure of its investment, the government will cover 50 percent to 80 percent of the losses incurred by the DBJ with tax money, despite critics warning that rescuing failing firms impedes industrial streamlining.

Hiromichi Shirakawa, chief economist at Credit Suisse in Japan, is one of those who say too much government involvement in the private sector will not necessarily be effective in turning around a tough environment.

“As the financial market shows signs of recovery supported by rebounds in production, the focus is now shifting to possible industrial realignment,” Shirakawa said. “It would not be good to see the government increase its intervention to protect certain companies. Such a policy could only delay necessary realignment.”

Nikai admitted the rescue program is subject to such criticism.

“We are using national expenditures, so we must be aware of our responsibility,” he said.

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