Rakuten Diverges From Japan Rally on Dilution, Debt Concerns

Shares of Rakuten Group Inc. have tumbled in recent weeks, splitting ways with a surging Japanese equity market, as concerns mount over its debt levels and its ability to make mobile operations profitable.

(Bloomberg) — Shares of Rakuten Group Inc. have tumbled in recent weeks, splitting ways with a surging Japanese equity market, as concerns mount over its debt levels and its ability to make mobile operations profitable.

Investors are watching moves in shares of billionaire Hiroshi Mikitani’s online retailer, after they sank 20% so far in 2023 to a 14-year low following a new stock sale that diluted the value of its equities. By contrast, the Topix benchmark has advanced 22% over the period and touched a 33-year high this month.

The president of one major investor in the company, Japan Post Holdings Co., this week flagged the risk of having to write down its share holdings.

Rakuten said in May that its new share sale to raise about 230.4 billion yen ($1.6 billion) in the base offering was aimed at helping redeem subordinated bonds and speeding up investment in base stations needed for growth in its carrier business. But a debt-grade cut this month underscores lingering market concern about the company’s finances and ability to make its mobile business a success: Japan Credit Rating Agency Ltd. downgraded the firm by one step to A-, citing uncertainty about the outlook for profitability at the mobile phone business.

Rakuten’s debt load rose after it decided in 2017 to enter Japan’s mobile carrier market. Concern about its credit quality has caused several of its bonds to fall to levels typically considered distressed, according to Bloomberg-compiled data.

The company’s adjusted net debt has climbed 3.5 times to 2.1 trillion yen in a little over five years as of the end of March, according to calculations by Bloomberg Intelligence.

Rakuten has a more than $5 billion pile of notes maturing in the next two years, the most of any Japanese corporate after SoftBank Group Corp., data compiled by Bloomberg show.

Japan Post Holdings is closely watching the share price of Rakuten Group because of its capital participation in the company, President Hiroya Masuda said at a news conference on Tuesday. The company will apply accounting rules to Rakuten shares and will make an announcement if any writedown of the holding is needed.

–With assistance from Finbarr Flynn and Ayai Tomisawa.

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