By Naomi Tajitsu and Makiko Yamazaki
TOKYO (Reuters) - Japan's Pioneer Corp secured a bailout worth up to 60 billion yen ($540 million) from Baring Private Equity Asia, after failed bets on car navigation and audio systems saddled it with debt and pushed it into the red.
Under the terms of the deal, the once-popular stereo maker said it will issue around 50 billion to 60 billion yen worth of shares to Baring by end-December and obtain a 25 billion yen bridge loan from the Hong Kong-based investment firm next week, allowing Pioneer to pay down a bank loan due later this month.
Its shares, however, tumbled 9.3 percent on Wednesday on worries of earnings dilution and as doubts remained about whether the fund infusion and Baring's backing would be enough to pull the company out of the doldrums.
"Pioneer's fate depends on whether it can expand in next-generation car navigation systems for self-driving cars, and the Hong Kong fund is apparently seeing the potential there," said Masayuki Otani, chief market analyst at Securities Japan.
But Otani said Pioneer "will face a very tough race with major automotive component suppliers" and that it is at a disadvantage "because it doesn't have any major automakers as large shareholders".
After selling its consumer electronics business in 2014, Pioneer focused mostly on car navigation systems, a technology rendered largely obsolete thanks to maps available on smartphones.
Development costs for advanced navigation systems have soared as companies including Panasonic Corp and Bosch have poured money into next generation cockpits for cars that make driving safer and luxurious, edging out cash-strapped companies like Pioneer.
Meanwhile, deep-pocketed rivals such as Samsung Electronics have altered the competitive landscape with acquisitions of smaller firms including Harman International.
After Wednesday's share drop, Pioneer's market capitalisation was less than 45 billion yen, potentially smaller than the lifeline it will receive.
Pioneer, which had 50 billion yen of interest bearing debt as of end-March, last month flagged the risk of its ability to continue as a going concern. It posted a net loss of 7.1 billion yen in the year ended in March, up from the previous year's 5 billion yen loss.
The Japanese company also said last month it was considering a major review of its car audio systems business and was in tie-up talks with several firms, including Calsonic Kansei. Pioneer has since not revealed more details.
The turn in fortunes has been sharp for Pioneer, once famous for its car stereos and CD players and worth more than 1 trillion yen in the 1990s. The company also dominated the Japanese commercial-use Karaoke market through the 1980s.
Baring, one of Asia's largest independent investment firms, is likely to become Pioneer's top shareholder, a spokesman for Pioneer told Reuters, adding that the exact size of the holding would be determined by the end of October. Mitsubishi Electric Corp and NTT Docomo Inc are among its major shareholders, as of end-March.
Baring did not respond to a request for comment on its plans for Pioneer.
Its cash injection is the latest in a string of deals by foreign private equity firms in Japan as cash-strapped domestic companies seek to offload operations ranging from memory chips to auto components.
This is not the first time Baring has been interested in Pioneer. In 2014, it agreed to acquire Pioneer's home electronics arm jointly with Onkyo Corp but later withdrew from the deal for undisclosed reasons. In the same year KKR & Co Inc agreed to buy Pioneer's DJ audio business.
($1 = 111.5000 yen)
(Reporting by Naomi Tajitsu; Additional reporting by Ritsuko Ando, Junko Fujita and Chang-Ran Kim; Writing by Sayantani Ghosh; Editing by Edwina Gibbs and Muralikumar Anantharaman)