Business / Corporate

Japan Display earns big return for INCJ despite IPO flop

Bloomberg

Look beyond the messy initial public offering of Japan Display Inc. and there’s a surprising tale in the numbers: The government helped combine three struggling businesses, restructure them to turn the combined entity profitable — and made money in the process.

The government-backed Innovation Network Corp. of Japan invested ¥200 billion in the Tokyo-based company in 2012. Sony Corp., Toshiba Corp. and Hitachi Ltd., which all lacked the scale to compete individually in the market for making smartphones and tablet displays, dumped their units into one new company.

Less than three years later, INCJ’s investment was valued at ¥319.6 billion, or about 60 percent more than its initial injection, and the three corporate investors made money as well. While Japan Display still has to prove it can compete over the long term, the deal is one sign that INCJ’s approach to restructuring Japan’s troubled industries holds promise.

“The government support helps companies to do business with a longer-term point of view,” said Yukio Sakamoto, chief executive officer of Win Consultant and the former president of Elpida Memory Inc.

“If we wait for reorganization from companies themselves, there will not be progress. A strong push from the government is good for industry reorganization.”

Japan Display slumped 15 percent in its debut on the Tokyo Stock Exchange after its initial offering price was set too high, according to Amir Anvarzadeh, a manager of Japanese equity sales at BGC Partners Inc. in Singapore. The IPO was the worst debut of any Asia-Pacific initial public offering worth at least $1 billion since 2008.

INCJ is a uniquely Japanese institution. It was created in 2009 with government funds with the goal of spurring new business growth. In practice, that has meant doling out small amounts of cash to startups and making bigger investments in helping Japan’s largest companies restructure troubled businesses.

Japanese companies tend to avoid closing money-losing businesses and firing workers, unlike in the U.S. for example where such moves are often applauded for serving shareholder interests.

“As a Japanese company you have a social responsibility to workers that is more important than the responsibility to shareholders,” said Yuuki Sakurai, president of Fukoku Capital Management Inc. “That makes it more difficult to lay people off.”

Japan Display is not INCJ’s only success. The fund has seen the value of its investment in chipmaker Renesas Electronics Corp. grow almost sixfold since September when it led a group including Toyota Motor Corp. and Nissan Motor Co. for a ¥150 billion stake.

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