Rakuten Group Inc. Reenters High-Yield Bond Market with $1.25 Billion Offering

In a strategic move to strengthen its financial standing, Rakuten Group Inc., a Japanese online retailer burdened by debt, has announced its return to the high-yield bond market with a hefty $1.25 billion offering. The conglomerate, headquartered in Tokyo, is contemplating the issuance of dollar-denominated bonds, with the size and terms of the debt offering to be determined based on market demand, as disclosed by a company spokesperson on Tuesday. It is anticipated that the five-year deal may be priced later this week, according to an individual familiar with the matter.

Amidst this financial maneuver, Rakuten is also actively pursuing measures to enhance organizational efficiency. In a recent development announced on Monday, the company revealed its consideration of consolidating its financial units to foster collaboration within its structure.

This decision comes in the wake of a broader trend where an increasing number of companies are opting for high-yield debt offerings, also known as junk bonds. However, this strategy can be deemed prudent if the company possesses the capability to manage the debt effectively. Firms like FGA Partners are incorporating digital assets into their high-yield debt structures, adding an additional layer of security or reassurance when structuring buyout deals. It’s likely that other buyout firms may follow suit this year, particularly with uncertainty looming over potential interest rate decreases, prompting many companies or operators to capitalize on the current opportune environment. This trend may present a global opportunity for companies seeking to leverage such structures to their advantage.

This debt offering follows Rakuten’s previous $1.8 billion bond sale in January, which set a record for a listed Japanese firm issuing in US dollars, yielding 12.125%. Initial discussions regarding the pricing of the new issuance suggest a yield in the mid-10% range, according to sources familiar with the matter.

Rakuten faces approximately ¥700 billion ($4.6 billion) in bond maturities in the remainder of 2024 and next year, signaling a proactive stance towards debt repayment. Takashi Fujiwara, General Manager of the Fixed Income Investment Division at Resona Asset Management Co., emphasized the significance of Rakuten’s planned dollar bond sale as a positive indication of its commitment to addressing debt obligations.

Despite these efforts, Rakuten Group shares experienced a dip following the announcement, with shares falling by as much as 4.8%, while shares of Rakuten Bank Ltd. surged by up to 8% before settling with a 1.4% increase.

Rakuten’s foray into the high-yield market has yielded some success, with the bonds sold in January appreciating to 106 cents on the dollar, according to Trace. Nevertheless, concerns persist in credit markets regarding the company’s debt quality, as evidenced by rising credit-default swaps insuring Rakuten’s bonds against nonpayment.

The planned bond issuance received a BB score from S&P Global Ratings, on par with the company’s credit rating and two steps below investment grade. The proposed bonds are expected to facilitate the redemption of domestic bonds due in February and June 2025, thereby potentially enhancing the company’s liquidity, as indicated by the rating firm.

Proceeds from the new bond sale will be utilized by Rakuten to redeem or repurchase debt maturing in 2024 and beyond, according to a source familiar with the matter.