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Rakuten’s Bonds Tumble on Concerns Over Earnings in Japan

(Bloomberg) -- Rakuten Group Inc.’s bonds have fallen to near all-time lows as concerns mount that the Amazon.com competitor in Japan will report more losses.

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Most of the firm’s yen debt has extended declines in recent weeks, with its 2031 note falling 3.2 yen in October, the sharpest monthly drop since it was sold almost a year ago. The e-commerce giant’s dollar and euro bonds are also hovering near record lows, data compiled by Bloomberg show.

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Billionaire Hiroshi Mikitani’s company, which is set to report earnings on Friday, faces a crucial test over whether it can raise a meaningful amount of capital to support its troubled mobile-phone business. Rakuten is also at risk of a downgrade further into junk territory by S&P Global Ratings.

The decline in the bonds reflects investor concern that Mikitani, a relative late-comer to Japan’s telecommunications sector, is carving off parts of Rakuten’s best businesses to finance his cellular aspirations. Rakuten plans to offload more of its securities unit in an initial public offering, with its banking subsidiary also poised to go public.

“These are the two possible opportunities for Rakuten to get a big amount of nondebt funds, and if it fails to do so, it may have to find other means to raise funds, which may take time,” said Chizuru Hoshi, a credit analyst at Nomura Securities Co.

A spokesman for Rakuten declined to comment on moves in the bonds.

Read more: Struggling Rakuten Might Need to Phone a Friend: Gearoid Reidy

Weak earnings may worsen its difficulties in trying to raise funds. Rakuten will probably post an operating loss of 57 billion yen ($389 million) for the quarter ended September, according to analysts’ estimates.

S&P has said it may cut the company’s credit score by the end of the year if the Tokyo-based company fails to raise a sufficient amount of nondebt funds for its non-financial unit.

The cost to insure Rakuten’s bonds against default has also soared to a record. Its credit-default swaps have jumped 104 basis points since the start of October, compared with an 18 basis-point decline in the Markit iTraxx Japan CDS index.

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