JAPANESE e-commerce giant Rakuten Group is back in the US junk bond market to shore up more cash for its struggling mobile unit and to help repay debt.

Amazon.com’s competitor in Japan is looking to add on another US$200 million to a series of notes that it first sold last year, according to a person familiar with the matter. Rakuten tapped the market in November for US$500 million at a whopping 12 per cent yield. The Morgan Stanley-led offering is expected to price later in the week.

The firm’s November transaction also went to funding capital investments for its mobile business and for the repayment of debt. In December, its ratings were cut further into junk by S&P Global Ratings.

The security is expected to be rated BB by S&P, the person said asking not to be identified discussing a private matter. Average yields for BB-rated borrowers currently stand at 6.77 per cent, according to Bloomberg-compiled data.  

Rakuten’s new notes may also be redeemed at a make-whole price discounted with the applicable US Treasury rate plus 50 basis points prior to Nov 30, the person added. The company is expected to raise 250 billion yen (S$2.5 billion) two-year bonds in late January.

The high-yield market has been mostly shut over the past month. Demand is lower as recession-wary investors reallocate money to safer blue-chip credits and soaring borrowing costs keep potential issuers on the sidelines. However, junk bonds have staged a comeback and have rallied for five straight sessions with gains seen across all ratings buckets.  

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‘Rakuten as risk’

Mobile broadband in Asia is likely to sustain continued price pressure, either due to competition or regulatory intervention, according to Bloomberg intelligence strategists Marvin Lo and Chris Muckenstrum.

“The Year of Rabbit could be a bumpy 12 months for Asian telcos amid recession and inflation risks,” the strategists wrote in a note on Monday (Jan 9). “Rakuten Group and Advanced Info Service could be most vulnerable, in our scenario.”

Mobile losses could keep Rakuten Group’s earnings in the red through 2024 despite double-digit operating-profit growth in both its Internet and fintech units, they wrote. Its highly leveraged mobile unit also might need more cash to support its subscriber ramp-up plan. Rakuten’s longer-term outlook, meanwhile, depends on its ability to stop mobile losses and meet near-term funding needs, BI strategist Sharon Chen wrote Wednesday.

“It is likely to miss guidance for mobile breakeven by the end of this year due to slow user gains, keeping its non-financial unit highly leveraged,” wrote Chen. “The company could eventually sell minority stakes in its profitable businesses, though this increases cash leak.” Balance sheet repair might need to happen by the fourth quarter of this year when US$2.2 billion of bonds come due, she added. BLOOMBERG