Rakuten: Extending Up to USD 1 Billion In Bonds Ahead of Earnings; Shares Fairly Valued

On Jan. 25, Rakuten announced plans to purchase up to USD 1 billion of senior notes maturing in 2024 in advance of fourth-quarter earnings. The transaction will be funded mainly by the issuance of senior notes maturing in 2027 and cash on hand. If the transaction goes through as planned, Rakuten will be relieved of redemption of about JPY 145 billion (assuming JPY 145 per USD 1) in 2024, but still needs to raise JPY 176 billion by the end of this year. Due to a series of bond redemptions after 2024, prudent cash management is required for Rakuten. Although we are concerned that the interest payment burden will be heavy, given the current interest rate and Rakuten’s credit rating, extending the maturity of its debt helps alleviate the pressing cash burden. In the medium term, improving Rakuten Mobile’s cash flow through user acquisition and higher average revenue per user, or ARPU, will be the key to fundamentally improving Rakuten’s financial health. We retain our JPY 620 fair value estimate and believe shares are fairly valued.