Japan’s Rakuten plans New Share Issue to Raise around $2.2 Bln -sources

Reuters file photo
The logo of Rakuten is pictured at the headquarters of Rakuten in Tokyo on May 15, 2019.

TOKYO (Reuters) – Japan’s Rakuten Group Inc is finalizing plans to raise about $2.2 billion by issuing new shares, according to two people, in the e-commerce company’s latest move to shore up its finances after years of losses from its mobile business.

Rakuten’s board could meet as early as this week to decide on the capital raising, according to one of the people.

Its shares tumbled to close down 9% on Monday after the Reuters report, in its biggest one-day drop in three years.

Current investors are being asked to dilute themselves to raise cash they did not think was needed, Kirk Boodry, analyst at Astris Advisory Japan, wrote in a client note about Rakuten’s plan.

The public offering is expected to raise roughly ¥300 billion ($2.2 billion) but the amount could change depending on Rakuten’s share price, which will influence the pricing of its new equity issuance.

Additionally, Rakuten plans to issue shares to founder and CEO Hiroshi Mikitani and a fund controlled by the entrepreneur, the person said.

It plans to use the funds to pay down debt and build base stations for its mobile business, the sources said.

A Rakuten spokesperson said it was not something it could comment on. The company is considering various options in regards to its financial position and it was not true that it had decided on anything, the spokesperson said.

It would make an announcement if such an issue were decided, the spokesperson added.

The sources declined to be identified because the matter has not been made public.

On Friday Rakuten posted another quarterly loss and said it would sell its stake in supermarket chain Seiyu to U.S. private equity firm KKR & Co Inc KKR.N for ¥22 billion, just three years after agreeing to buy the shares from Walmart Inc.

Last month it raised around 83.3 billion in an initial public offering of its banking unit. It is also expected to list its brokerage arm.

Costly build-out

Rakuten has posted net losses of ¥735 billion in a little more than four years, including a record loss last year, according to Refinitiv data.

Before Monday’s plunge, the shares were up 24% this year.

Over the last 3 years, its shares had returned a negative 24% compared to a 54% positive return in the TOPIX .TOPX when dividends were taken into account.

Mikitani had originally planned to build Japan’s fourth major mobile carrier, promising to create a low-cost nationwide network by using cloud-based software and commoditised hardware.

But the build-out has been costly and Rakuten has struggled to take market share from bigger rivals that boast higher-quality network service.

The group has some ¥400 billion in bonds due by 2024 and a further ¥430 billion in 2025, Refinitiv data showed.

Its U.S. dollar-denominated bonds issued in January have an annual interest rate of more than 10%.

S&P Global Ratings rates Rakuten’s debt “junk,” and in January cited the “prospect of deeply negative free operating cash flow” and “very weak financial standing” continuing in the non-financial unit of the business this year.