Japanese Internet firm Rakuten selling $266 million in bonds

TOKYO – Japanese e-commerce giant Rakuten Group is back in the United States junk bond market to shore up more cash for its struggling mobile unit and help repay debt. 

Amazon.com.’s competitor in Japan is looking to add another US$200 million (S$266 million) to a series of notes that it first sold in 2022, according to a source familiar with the matter. Rakuten tapped the market last November for US$500 million at a whopping 12 per cent yield. The Morgan Stanley-led offering is expected to price later in the week.

Rakuten’s November transaction also went to funding capital investments for its mobile business and the repayment of debt. In December, its ratings were cut further into junk by S&P Global Ratings.

The security is expected to be rated BB by S&P, the source said, asking not to be identified discussing a private matter. Average yields for BB-rated borrowers now stand at 6.77 per cent, according to Bloomberg-compiled data.  

Rakuten’s new notes may also be redeemed at a make-whole price discounted with the applicable US Treasury rate plus 50 basis points prior to Nov 30, the source added. The company is expected to raise 250 billion yen (S$2.5 billion) in two-year bonds in late January. 

The high-yield market has been mostly shut over the past month. Demand is lower as recession-wary investors reallocate money to safer blue-chip credits and soaring borrowing costs keep potential issuers on the sidelines. However, junk bonds have staged a comeback and have rallied for five straight sessions, with gains seen across all ratings buckets.  

Mobile broadband in Asia is likely to sustain continued price pressure, due to competition or regulatory intervention, said Bloomberg Intelligence strategists Marvin Lo and Chris Muckenstrum. 

“The Year of the Rabbit could be a bumpy 12 months for Asian telcos amid recession and inflation risks,” the strategists wrote in a note on Monday. “Rakuten Group and (Thai telco) Advanced Info Service could be most vulnerable, in our scenario.”

Mobile losses could keep Rakuten’s earnings in the red up till the end of 2024, despite double-digit operating-profit growth in both its Internet and fintech units, they wrote. Its highly leveraged mobile unit also might need more cash to support its subscriber ramp-up plan.

Rakuten’s longer-term outlook, meanwhile, depends on its ability to stop mobile losses and meet near-term funding needs, Bloomberg Intelligence strategist Sharon Chen wrote on Wednesday.

“It is likely to miss guidance for mobile break-even by the end of this year due to slow user gains, keeping its non-financial unit highly leveraged,” wrote Ms Chen. “The company could eventually sell minority stakes in its profitable businesses, though this increases cash leak.”

Balance sheet repair might need to happen by the fourth quarter of 2023, when US$2.2 billion worth of bonds come due, she added. BLOOMBERG