(Bloomberg) — Rakuten Group Inc. plans to issue new shares to raise as much as ¥332.2 billion ($2.4 billion) to shore up capital depleted by its loss-churning mobile unit.
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The Japanese online shopping mall said it would issue new shares worth about ¥41.8 billion to CyberAgent Inc. and Tokyu Corp., as well as to two asset management companies of billionaire founder Hiroshi Mikitani’s family — Mikitani Kosan Inc. and Spirit Inc. Rakuten will also conduct a public sale of new shares at an indicative discount range of 3% to 5%, with the offering price to be determined as early as May 24, it said.
The funds would help the company redeem subordinated bonds and speed up investment in base stations needed for growth in Rakuten’s carrier business, the company said in a statement Tuesday.
Shares in the e-commerce firm closed down 5.1% on concerns about equity dilution, with reports ahead of the announcement on the new share issue wiping out about $1.2 billion in the company’s market value.
In contrast, the cost to insure Rakuten’s bonds against default is heading for the biggest two-day drop ever, while the company’s junk dollar notes rose by almost 2.5 cents since the share sale news, also a record. The e-commerce firm’s bonds surged by a record in the credit market.
Rakuten’s foray into Japan’s saturated wireless market has resulted in billions of dollars worth of losses, much of which has been offset by selling more debt at home and abroad. In addition to offering $450 million of dollar bonds at a yield close to 12% in January, it has also sold ¥250 billion of notes to local individual investors.
The move indicates a sale of a minority stake in the mobile business is unlikely, according to Amir Anvarzadeh, strategist at Asymmetric Advisors. “Disappointing,” he said, adding however that if activist investors were the buyers of the new shares, they could then pressure Rakuten “to somehow get rid of the mobile assets.”
S&P Global Ratings, which gives Rakuten a speculative-grade debt score, said the company’s move to raise “considerable non-debt funds” would likely improve its credit quality. But Japan Credit Rating Agency Ltd. said it was placing the company’s A investment-grade rating under review with a negative direction, citing risks at the firm’s loss-making mobile business.
The Tokyo-based company reported its eleventh consecutive loss in the quarter just ended, dragged down by a ¥103 billion loss on its mobile arm. Its target to break even in the fourth quarter could be far fetched, Bloomberg Intelligence’s Marvin Lo said.
Stronger capital ties with CyberAgent and Tokyu will help shopping site operators explore partnerships in online advertising and data marketing, Rakuten said. Daiwa Securities Group Inc., Mizuho Securities Co., Morgan Stanley and Goldman Sachs will act as joint global coordinators of the public offering, it said.
Rakuten has begun cashing in on its other profitable operations, listing its banking unit on the Tokyo Stock Exchange in April. Mikitani’s also spoke of plans to list the firm’s securities arm and last week announced the sale of the conglomerate’s stake in retailer Seiyu Holdings Co.
Rakuten has cut capital spending on its carrier business, but further costs loom as it takes on far-bigger rivals NTT Docomo Inc., KDDI Corp. and SoftBank Corp. The mobile venture has yet to secure spectrum allocation best-suited for connectivity inside buildings and is facing the high cost of building out 4G base stations.
–With assistance from Takako Taniguchi, Kurt Schussler, Takahiko Hyuga and Ayai Tomisawa.
(Updates with details on new share issue from second paragraph)
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