* Will use part of funds to invest in equipment for smartphone market, auto LCD panels
* Govt-backed sponsor to recoup initial investment, cut shareholding
* Japan Display sees operating profit increasing 10-fold in year to March
* Offering on par with Suntory's food and beverage, could surpass JAL (Adds details of share sales, investment plans, company forecast)
By Sophie Knight
TOKYO, Feb 14 (Reuters) - Japan Display, the world's biggest maker of screens for tablets and smartphones, gained approval from the Tokyo stock exchange for a listing of around $3.8 billion as the company taps one of Asia's best performing equity markets in the past year.
The sale next month will allow a government-backed fund, which spent 200 billion yen ($1.96 billion) on a controlling stake in Japan Display, to recoup its investment. Japan Display will also issue new shares to help fund investment in equipment as it builds capacity to meet rising orders from markets including China.
The offering by the supplier to Apple Inc and Samsung Electronics Co Ltd is part of an expanding pipeline of Japanese listings. Companies are increasingly venturing into equity markets after the reflationary policies of Prime Minister Shinzo Abe boosted Tokyo stock prices by more than 60 percent since November 2012.
At 389.3 billion yen, the Japan Display listing is on par with Suntory Beverage and Food Ltd's 388 billion yen initial public offering last July. At a touch more at the current price, it would be the biggest since Japan Airlines Co Ltd's $8.5 billion in September 2012.
Japan Display said it may issue an additional 18 million shares as over-allotment, bringing the total to 409 billion yen.
The company was formed from the ailing display units of Hitachi Ltd, Sony Corp and Toshiba Corp in 2012. Its majority shareholder, the government-backed Innovation Network Corporation of Japan, has since engineered a turnaround.
The company has managed to stage a sharp earnings recovery on booming worldwide consumer demand for mobile devices, claiming the top share of the small and midsize panel market in 2013.
Japan Display said on Friday that it expects operating profit to grow more than 17 times to 36.4 billion yen in the year ending March against sales of 623.4 billion yen.
Net profit will expand more than nine times to 36.6 billion yen, while EBITDA, or earnings before interest, tax, depreciation and amortisation, will reach 370.17 yen per share, it said.
Japan Display set a tentative IPO price of 1,100 yen and plans to list on March 19. That price would give it a market capitalization of 681.3 billion yen.
Existing shareholders are selling 213.9 million shares. The Innovation Network Corporation of Japan will reduce its stake from 86.7 percent to 34.5 percent, enough to give it a veto right at board meetings.
Other shareholders Sony, Hitachi and Toshiba will reduce their individual stakes from 4.3 percent to 1.7 percent.
Japan Display will issue 140 million new shares to raise a further 154 billion yen as it expands capacity, with 63 million of those offered to overseas investors.
Of that, 17 billion yen will go towards increasing production of modules for mid-tier smartphones for the Chinese market while 2.5 billion yen will be invested in a factory in central Japan that makes LCD panels used in cars.
Companies raised $10.4 billion from IPOs in Japan in 2013, with deal volumes down 19 percent from the previous year, Thomson Reuters data showed. Consulting firm EY forecasts the number of deals in 2014 to rise to about 80 from 60 last year, buoyed by Prime Minister Abe's economic policies.
Hitachi said on Friday that it would relist its battery and recording media subsidiary Hitachi Maxell, selling shares in an offering worth up to $750 million.
Railroad operator Seibu Holdings and Line Corp, operator of the free messaging app Line, currently owned by South Korea's Naver Corp are other major listings that are considered possible in Tokyo this year.
Goldman Sachs, Morgan Stanley and Nomura were hired as joint global coordinators of Japan Display's IPO, with 13 other banks also helping to underwrite the deal, according to the term sheet. ($1 = 102.1650 Japanese yen) (Additional reporting by Elzio Barreto in Hong Kong and Reiji Murai and Dominic Lau in Tokyo; Editing by Edmund Klamann, Edwina Gibbs and Ryan Woo)