(Bloomberg) -- Rakuten Group Inc., a rare major Japanese company to experience stress in credit markets, plans to sell a junk dollar bond as it tries to push back obligations.

The technology conglomerate’s shares rose as much as 4.5% in Tokyo Friday after it said a day earlier that it would issue three-year notes and repurchase debt maturing this year. Rakuten is expected to price a $1 billion non-callable bond due 2027 next week, according a person familiar with the matter who asked not to be identified because they’re not authorized to speak about it.

Credit markets have signaled some of the highest repaymeny risk in Japan for billionaire Hiroshi Mikitani’s company, according to Bloomberg-compiled data, after a 2020 move into Japan’s saturated mobile phone market pulled it deeper into debt. Rakuten has been working to shore up its finances, and its plan to raise funds from the world’s largest bond market reflects the fact that there’s no junk debt market at home in Japan.

The $1 billion bond sale plan and the possibility of more debt issuance to refinance its over $5 billion of notes maturing by June 2025 “would reduce near-term risk but create another maturity wall in 2027,” Bloomberg Intelligence analyst Sharon Chen wrote. “It might struggle to issue bonds maturing beyond three years given the uncertain outlook for its mobile business. The company already has $1.3 billion of bonds due or callable in 2027.”

To raise funds, the company has sold equity in itself and several units. Rakuten said last month it was shedding 14% of its online bank, which listed last year. Mikitani said this week that the company is ramping up marketing for its loss-making mobile unit and pitching wireless services to corporate partners.

Still, credit market data signal continued concern about the health of its balance sheet. The cost to insure against debt nonpayment with credit-default swaps was at 408 basis points on Thursday, after surging to 784 basis points in July last year, according to CMA data.

But the swaps remain higher than other debt-laden Japanese companies, such as Toshiba Corp.’s 238 basis points and SoftBank Group Corp.’s 178 basis points.

And while Rakuten’s bonds have rebounded from lows marked last year, they remain below par levels. Its 5.125% dollar perpetual notes traded at about 86 cents, after sinking to about 57 cents in July, Bloomberg-compiled data show.

Tender Offer

Rakuten also launched a tender offer for as much as $1 billion of bonds maturing this year, of which there’s $1.75 billion outstanding, according to data compiled by Bloomberg.

After the dollar-note sale and tender offer close, Rakuten plans to repurchase yen-denominated senior bonds due to mature starting in 2024, it said.

The two dollar bonds that are part of the company’s tender offer both mature in November and have coupons of 10.25% and 3.546%. 

The firm, which last sold bonds a year ago, is among a large batch of junk issuers tapping the market. 

In Japan, on the other hand, junk bond issuance is rare.

“Domestic investors including individuals have the idea that holding corporate bonds with low creditworthiness may result in a loss of principal,” said Toshiyasu Ohashi, chief credit analyst at Daiwa Securities Co. “Investment criteria and risk appetite are fundamentally different from those in the US, where bonds are eligible for investment if they offer returns commensurate with risk.”  

--With assistance from Gowri Gurumurthy, Michael Tobin and Finbarr Flynn.

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