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Japan Display Inc. may issue preferred shares to raise as much as ¥100 billion from a government-backed fund, people familiar with the matter said, a deal that amounts to a bailout of the struggling display maker.

The Tokyo-based supplier of screens to Apple Inc. has explored ways to win a cash injection from Innovation Network Corp. of Japan, its largest shareholder. Both sides are now leaning toward a sale of preferred stock to avoid diluting common stock owners, the sources said.

The capital raised would go toward the development of displays for cars and next-generation smartphone screens, according to the sources, who asked to not be identified because the discussions are private.

Japan Display remains one of the largest suppliers of liquid crystal displays used in smartphones but is headed toward its third straight year of losses, as global mobile demand sputters and competitors from Korea and China undercut prices to grab market share.

The company and rival Sharp Corp. now need massive amounts of capital to invest in organic light-emitting diode displays, considered the future standard for iPhones and other mobile devices. Apple is struggling to find enough OLED supply for its new iPhones, expected next year, Bloomberg News reported this month. Initial costs for screen suppliers however could reach $2 billion, stretching their finances even before they get any firm orders.

Japan Display and INCJ are both looking to announce a deal this month, according to the sources. The listed company may also announce its medium-term business plan at the same time. It had also considered issuing junior debt, the sources said.

Reports of a bailout had circulated for months, in part because of INCJ’s track record of rescuing ailing Japanese corporations. Four years ago, INCJ created Japan Display by merging the troubled screen-making units of Toshiba Corp., Sony Corp., and Hitachi Ltd. It also put money into Renesas Electronics Corp., formed in 2010 from the hard-pressed semiconductor operations of Mitsubishi Electric, Hitachi, and NEC.

The fund earlier this year lost a bidding war with Taiwan’s Foxconn Technology Group over control of Sharp, JDI’s only domestic rival. Both Japan Display and INCJ declined to comment on Thursday.

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