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.