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Renesas to Sell $1.8 Billion in Shares to Fund, Companies

Renesas Said to Approve $2.4 Billion Bailout Plan by Japan Fund
Renesas would eliminate as many as 5,000 positions and shut more factories under INCJ’s proposal. Photographer: Kiyoshi Ota/Bloomberg

Renesas Electronics Corp., the ailing Japanese chipmaker, will sell at least 150 billion yen ($1.8 billion) of new shares to a government-backed fund and customers such as Toyota Motor Corp. as part of a bailout plan.

A group led by Innovation Network Corp. of Japan will buy 1.25 billion shares for 120 yen apiece, and the government-backed fund will own 69 percent of the Kawasaki, Japan-based Renesas, the company said in a statement. That compares with today’s closing price of 308 yen in Tokyo trading.

The capital will help Renesas, a supplier to Apple Inc. and Nintendo Co., boost spending to develop more advanced microcontrollers used in cars and TVs. Japanese chipmakers have struggled amid falling demand, the strong yen and competition from Samsung Electronics Co., causing Elpida Memory Inc. to file for bankruptcy protection in February before agreeing in July to be acquired by Micron Technology Inc.

“The risk of bankruptcy is gone with this fresh capital,” said Makoto Kikuchi, chief executive officer at Myojo Asset Management Japan Co., a Tokyo-based hedge advisory firm. “Renesas must now fix its money-losing structure before considering ways to boost revenue.”

Renesas may get an additional 50 billion yen of investment or financing from INCJ if more funds are needed, according to today’s statement. The chipmaker may eliminate as many as 5,000 positions and shut more factories under INCJ’s proposal, a person familiar with the plan said last week.

Toyota, Nissan

A group of companies including Toyota, Nissan Motor Co., Denso Corp., Keihin Corp., Panasonic Corp., Nikon Corp., Yaskawa Electric Corp. and Canon Inc. will also invest in Renesas, according to today’s statement. Toyota, Japan’s biggest carmaker, will hold 2.5 percent of Renesas, it said.

Renesas President Yasushi Akao said today the company recognizes the need for further restructuring and has received a proposal on job cuts from INCJ. The two sides also will discuss forming new management, he said.

Renesas is cutting jobs and considering closing or selling plants as demand drops for its system LSI chips, used for functions including processing TV images. The chipmaker plans to increase its focus on the microcontroller business, which accounted for 43 percent of Renesas’s sales last fiscal year.

The company plans to spend 40 billion yen to develop microcontrollers and another 40 billion yen to develop automotive semiconductors, it said in today’s statement.

Revenue Forecast

Renesas rose 3 percent to 308 yen in Tokyo trading, trimming its decline this year to 35 percent.

The company has posted 177.6 billion yen in combined losses since it was formed in 2010 through the merger of money-losing chipmakers Renesas Technology Corp., a venture between Hitachi and Mitsubishi Electric, and NEC Electronics Corp.

Renesas today cut its revenue forecast for the year ending March 31 to 820 billion yen from a previous forecast of 868 billion yen. It maintained its net-loss forecast of 150 billion yen, compared with last year’s loss of 62.6 billion yen.

The INCJ plan keeps Renesas, a key supplier to Japan’s automakers, in domestic hands after KKR & Co., a New York-based private-equity firm, was said in August to seek control of the company. KKR offered Renesas’s main shareholders and lenders about 100 billion yen, a person with knowledge of the matter said at the time.

Lexus Microcontrollers

Renesas had a 27 percent share of the global market for microcontrollers last year, according to researcher IHS iSuppli. It controlled 42 percent of the market for microcontrollers used in cars to run systems including airbags and brakes. A lack of the components after last year’s record earthquake and tsunami in Japan prompted automakers to shut factories.

Koji Endo, a Tokyo-based analyst at Advanced Research Japan, estimates Toyota’s Lexus LS luxury sedan uses about 100 microcontrollers. Renesas’s microcontroller business has an operating profit margin of at least 10 percent, the company said in June.

Renesas said Sept. 28 it clinched loan contracts for about 200 billion yen with lenders including Sumitomo Mitsui Trust Holdings Inc. The chipmaker said Oct. 16 it booked a one-time charge of about 84 billion yen to cut about 7,500 jobs. The company employed 42,800 as of March 31, according to data compiled by Bloomberg.

Mitsubishi Electric Corp., Hitachi Ltd. and NEC Corp. currently own a combined 91 percent of Renesas.

Japan Air

Innovation Network Corp. was formed in 2009 to invest in companies that support Japanese industry and has announced about 400 billion yen in planned spending on 31 projects, according to its website.

The fund took a 70 percent stake in the liquid-crystal-display venture formed this year by Sony Corp., Toshiba Corp. and Hitachi, and spent $680 million for a 40 percent stake in Landis+Gyr AG, a Swiss electronic-meter company majority-owned by Toshiba.

The government-backed fund ETIC injected 350 billion yen into bankrupt Japan Airlines Corp., which had filed for bankruptcy with 2.32 trillion yen in liabilities in January 2010 -- the nation’s biggest bankruptcy of a non-financial company.

JAL returned to the stock market Sept. 19 in a 663 billion-yen public offering after a two-year turnaround that transformed it into the world’s most-profitable airline.

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