Japanese e-commerce giant Rakuten Group Inc., led by billionaire Hiroshi Mikitani, is exploring opportunities to issue more bonds within Japan. This strategic move aims to diversify the company's funding sources, which have predominantly relied on international debt markets. Investor confidence in Rakuten has been growing, as evidenced by declining yields on the company’s debt. Despite challenges such as a below-standard credit rating and significant upcoming bond redemptions, Rakuten remains optimistic about its financial trajectory. The company’s recent earnings report showed promising signs of recovery, particularly in its mobile business, which saw a 20% increase in sales revenue compared to the previous year.
Building Investor Confidence Through Strategic Debt Issuance
Mikitani emphasized that Rakuten is witnessing an increasing level of trust from bond investors, noting that yields demanded for the company’s debt have decreased substantially. This shift reflects improved market sentiment towards Rakuten after years of financial struggles. While the company’s credit rating remains below the "A" threshold preferred by many Japanese investors, the narrowing spread between Rakuten’s debt yield and government bonds suggests growing investor confidence. The company’s last domestic bond issuance was in February 2023, targeting retail investors, but Mikitani hinted at potential future issuances without specifying details on size or timing.
The improvement in Rakuten’s financial health is further supported by its recent quarterly earnings report, which revealed a 20% surge in mobile business revenue. Mikitani expressed optimism that as the company’s performance continues to improve, it will be able to reduce its interest burden. He also set ambitious goals for Rakuten, aiming to become one of Japan’s top-tier profitable companies and eventually a global leader. However, experts caution that while progress is evident, Rakuten still faces hurdles, including sustained losses in its mobile sector and the need for a compelling investment rationale to attract bondholders despite lower credit ratings.
Navigating Challenges in the Japanese Bond Market
Despite the positive outlook, Rakuten must address several challenges to successfully tap into the domestic bond market. The company is due to redeem ¥400 billion worth of bonds in the first half of this year, a significant financial commitment. Additionally, Rakuten’s credit rating varies across agencies, with some assigning it a BB rating, while others give it a BBB+ or A-. This inconsistency may deter potential investors who prefer higher-rated securities. Nevertheless, the narrowing yield spread indicates that investors are becoming more comfortable with Rakuten’s risk profile.
Experts like Taketoshi Tsuchiya, CEO of Tsuchiya Asset Management Co., highlight that issuing yen-denominated bonds in Japan will not be straightforward for Rakuten. The company’s history of losses and lack of substantial improvement in its credit rating pose significant obstacles. To overcome these challenges, Rakuten may need to demonstrate a clear path to profitability, especially in its mobile business, which has shown signs of recovery. If Rakuten can achieve this, it may find a receptive audience among Japanese investors looking for opportunities in a recovering tech giant.
