Rakuten Group Inc. is marketing a $500 million dollar 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 strains.
(Bloomberg) — Rakuten Group Inc. is marketing a $500 million dollar 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 strains.
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.”
Rakuten’s senior unsecured note due 2024 fell 0.4 cent on the dollar Wednesday to a record low of 90 cents. Its 5.125% perpetual bond also dropped 0.4 cent on the dollar to 73.81 cents.
Rakuten declined to comment on the deal when contacted by Bloomberg News.
Read More: Rakuten Is Said Cutting Mobile Unit Headcount to Woo Investors
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 U.S. dollar bonds, by one notch if we come to believe the company cannot execute a considerable amount of nondebt financing within 2022,” S&P analyst Makiko Yoshimura wrote in a report Wednesday. “Even if it does so, we may consider a downgrade if we think the nonfinancial unit’s EBITDA and FOCF will deteriorate more than we currently assume, or pressure on liquidity increases.”
Read more: Rakuten’s Bonds Tumble on Concerns Over Earnings in Japan
Rakuten posted a wider-than-expected operating loss of 90 billion yen ($644 million) during the quarter ended September as its mobile unit continued to struggle.
The company has found it hard to compete against bigger rivals NTT Docomo Inc., KDDI Corp. and SoftBank Corp. since launching a full-fledged commercial mobile service in 2020 targeting the low end of the market. It’s also said to be in the process of reducing headcount at the unit to help improve finances, clean up its balance sheet and attract third-party investors.
Rakuten’s proposed bond sale would mark the latest addition to Japan’s tiny junk debt market. The outstanding amount of dollar bonds sold by Japan’s speculative-grade issuers is $13.5 billion, compared with about $2 trillion globally, according to Bloomberg-compiled data. Rakuten and SoftBank Group Corp. are among the few Japanese junk issuers in the overseas market.
It also arrives at a time when Asian junk dollar bond issuance has tumbled 77% to $17 billion so far this year, driven by a spike in yields that soared to a record of about 22% earlier this month, Bloomberg-compiled data show.
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.
–With assistance from Finbarr Flynn and Min Jeong Lee.
(Updates with details of issuance and yields of Asian high-yield dollar bonds)
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