Rakuten Group seeks rare junk bond offering
eCommerce firm reports widening 3Q losses
TOKYO: Rakuten Group Inc is marketing a Us$500mil (Rm2.28bil) bond to bolster the Japanese Internet firm’s struggling mobile unit, in a test of demand for a rare junk debt offering from the country and a borrower under financial strain.
Amazon.com Inc’s competitor in Japan is expected to price the two-year senior unsecured notes early next week, according to people with knowledge of the matter.
The bond offering is gaining attention, given Japan’s small, fledgling junk debt market, where weaker companies aren’t compelled to sell speculative-grade notes due to easy access to bank loans.
The debt sale also comes after Rakuten reported widening losses for the third quarter and as it faces the risk of a credit rating downgrade.
“Rakuten’s plan to issue bonds could signal a delay in raising funds through the listing of its banking and securities units,” Bloomberg Intelligence analysts Sharon Chen and Hui Yen Tay wrote in a note. “This also increases rating risk.”
S&P Global Ratings had previously placed Rakuten on review for a downgrade, citing the mobile business’ operating performance, as it expects the firm to have trouble winning more users with ultra-cheap mobile contract offerings.
“We may lower our ratings on Rakuten, including the proposed US dollar bonds, by one notch if we come to believe the company cannot execute a considerable amount of non-debt financing within 2022,” S&P said in a report yesterday.
“Even if it does so, we may consider a downgrade if we think the non-financial unit’s earnings before interest, tax, depreciation and amortisation, and free operating cash flow will deteriorate more than we currently assume, or pressure on liquidity increases.”
Rakuten launched its low-cost mobile phone service in 2020, but has struggled to make headway against the country’s three biggest mobile carriers, who together control more than 90% of a saturated market.
The proposed bond sale would mark the latest addition to Japan’s tiny junk debt market.
The outstanding amount of dollar bonds sold by the country’s speculative-grade issuers is Us$13.5bil (Rm61.5bil), compared with about US$2 trillion (RM9.1 trillion) globally, according to Bloomberg-compiled data.
Rakuten and Softbank Group Corp are among the few Japanese junk issuers in the overseas market.
Morgan Stanley is the offering’s lead bookrunner, with Goldman Sachs Group Inc, Daiwa Securities Inc, Mizuho Financial Group Inc, Bank of America Corp and Citigroup Inc also joining the deal, said the people who requested anonymity discussing private matters.