(Bloomberg) -- Rakuten Group Inc. is selling down its stake in its online banking unit to raise $410 million and shore up finances depleted by its loss-churning wireless business.
Shares in newly-listed Rakuten Bank Ltd. tumbled on the news, dropping as much as 9.5%, the biggest intraday drop in a month. The move would lower Rakuten’s stake in the online bank to 49.27%, down from 63.34%, but retain the bank as a subsidiary, the Japanese e-commerce conglomerate said. Rakuten’s shares fell as much as 2.1%.
The Tokyo-based internet shopping mall operator is expected to report its fifth straight year of losses as it fights to turn around its struggling mobile carrier unit. With roughly $5 billion of bonds due in the next two years, Rakuten is under pressure to staunch the bleeding. It listed Rakuten Bank in April and announced in May a new share issue. It’s also said it plans to reapply for a listing of its securities arm.
The company priced the Rakuten Bank share sale on Thursday, saying it will offload 24.55 million shares in the bank at ¥2,470 each in an overseas secondary offering of common stock that would raise ¥60.64 billion ($410 million). The shares closed Wednesday at ¥2,738.
“A successful sale should provide a certain amount of support, but issues will remain,” Citigroup analyst Mitsunobu Tsuruo said in a note to investors. With free cash flow in the red, the company is selling its assets to pay or refinance almost ¥1 trillion in debt over the next two years, he said. “The firm needs to raise a substantial level of funds to cover the free cash flow deficit in the non-financial business alone.”
Founded by former investment banker Hiroshi Mikitani, Rakuten has expanded beyond its core e-commerce operation. Many of those bets, such as in online banking and securities, have been lucrative, but a 2020 foray into Japan’s saturated mobile phone market has pulled it deeper in debt.
The company earlier said that achieving profitability at the mobile unit, which competes with Nippon Telegraph & Telephone Corp. and KDDI Corp., as well as SoftBank Group Corp.’s wireless arm, would be difficult this year, even on a single-month basis.
Operating mobile losses are still hovering around ¥80 billion a quarter, wiping out profits made from other divisions, said Asymmetric Advisors strategist Amir Anvarzadeh. “Subscriber base needs a huge boost to break even,” he said.
Rakuten Group’s shares have dropped about 35% over the past five years, while the Topix index has gained about 48%.
--With assistance from Kana Nishizawa.
(Adds analyst comments.)
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