Rakuten Debt: Kicking the can down the road
Rakuten Group has determined to issue USD denominated senior notes due 2027 in overseas markets outside Japan, and to commence cash tender offers for certain USD denominated senior notes maturing 2024 in overseas markets outside Japan. In the future, Rakuten might also purchase JPY denominated senior bonds in domestic markets.
Background and Purposes of the Transaction
Over the past year, Rakuten has worked to procure various non-interest-bearing debt funding, including the issuance of new equity through a public offering and concurrent third-party allotments, the secondary offering of shares of Rakuten Bank in April 2023 and December 2023, and the partial transfer of shares of Rakuten Securities to Mizuho Securities in November 2022 and December 2023.
Given the large amount of debt coming due over the next 18 months, Rakuten will need to continuously work on balance sheet management through reduction of total debt and proactive debt maturity management.
As such, Rakuten has commenced tender offers to purchase for cash for a combined aggregate purchase price (exclusive of accrued and unpaid interest) of up to $1 billion the two large USD-denominated bonds coming due this calendar year. This transaction does not come free, Rakuten is offering a three percent early termination premium.
The Offers are being made pursuant and are subject to a condition to the Offers of the completion by Rakuten of the private placements of senior notes announced concurrently with the Offers, i.e. the new senior notes due in 2027. According to reporting by Nikkei, the market expects the interest rate of the senior notes to be settled between 10 and 13 percent, i.e. in likelihood at a higher rate than the current notes. Given current optimistic market conditions and the potential for market disruption through the US election later in the year, this extension of the maturity can be doubtless judged as prudent.
After the settlement of the Offers, Rakuten intends to repurchase certain of their JPY denominated senior bonds scheduled to mature in and after 2024 with cash on hand and any remaining proceeds from the Offering. There are JPY 20bn and JPY 10bn instruments coming due at the end of June 2024, as well as a JPY 75bn bond in early December 2024. The “big kahuna” is a JPY 250bn bond maturing in February 2025.
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