Japanese Government Plans To Acquire JSR Corp To Strengthen Chip Industry

JAKARTA - On Monday, June 26, the board of directors of the semiconductor material maker, JSR Corp, will meet to discuss the potential purchase of billions of dollars by government-backed funds. This will be an accelerated step from Japan's efforts to strengthen its chip industry.

JSR's market cap value at the close of the market on Friday, June 23 reached 677 billion yen (Rp71 trillion). The company's shares were not traded on Monday, with a spike in purchase orders after the photoresist manufacturer for the global chip company announced on Saturday 24 June that it was considering an offer to be acquired by Japan Investment Corp (JIC), which is overseen by the influential trade ministry.

Purchases by JIC will be the latest step in a series of increasingly powerful measures by Japan to boost its chip industry, which has an advantage in materials and equipment but has lost its overall global market share in recent decades.

JSR is one of the main suppliers of photoresist, which is a light-sensitive chemical used to print patterns on wafers.

"Japan has a monopoly on this technology, while China and other countries have not developed similar technologies," Kazuhiro Sugiyama of research institute Omdia said. "The Japanese government may be moving to prevent sensitive technology flows overseas."

JSR-like companies in Japan include Tokyo Ohka Kogyo, Shin-Etsu Chemical, and Sumitomo Chemical. Tokyo's Ohka shares jumped 15% after the news emerged.

JIC is expected to spend about 1 trillion yen on JSR acquisition, as reported by the Nikkei newspaper. The fund will flow 500 billion yen to a new company to make purchases and borrow 400 billion yen from Mizuho Bank.

"JSR itself contacted JIC for potential support," said an industry ministry official.

The company needs to make massive investments in research and development and increase production capacity in line with growing demand, said the official, who did not want to be named because he was not allowed to speak to the media.

Countries around the world are trying to control the supply of semiconductors, which are important components in the defense, electronics and automotive sectors, amid rising tensions between China and the United States.

"JIC is just starting here. I would be very surprised if this was their last step," wrote Travis Lundy of Quiddity Advisors in Smartkarma's notes.

Although Japan has a long track record mixed in interventions to save a slumped industrial company, a move to take over a lucrative company that has experienced restructuring risks criticism of the possibility of excessive interference.

JSR, founded in 1957 as a government-backed synthetic rubber producer, reported a 20% increase in sales to 408.9 billion yen in March, while operating profit fell 33% to 29.4 billion yen.

JSR shares, which are unusual for Japanese companies to have CEOs born abroad, have risen 25% so far this year. ValueAct Capital activist investors are one of the main shareholders and have an executive on board of directors.