Rakuten's Hybrid Note Return: A Risky Path to Capital

Rakuten, the Japanese e-commerce and fintech giant, is gearing up for a return to the dollar bond market with hybrid notes, a move that could raise eyebrows among investors. The company's recent history of financing uncertainty has left a mark on its risk profile, and the proposed hybrid notes, rated 'BB' and placed on CreditWatch Negative, are no exception.



As a long-time investor, I can't help but wonder if Rakuten's hybrid notes are a risky path to capital or a clever maneuver to secure much-needed funding. My core investment values emphasize stability and predictability, and Rakuten's past bond offerings have been a rollercoaster ride. In 2021, the company issued USD-denominated subordinated bonds rated 'BB', reflecting a speculative risk profile. Fast forward to 2024, and we're looking at a new round of hybrid notes with an even higher subordination level, taking priority over stock and subordinated debts.



Geopolitical tensions and labor market dynamics could further complicate the picture for Rakuten's hybrid notes. Geopolitical instability can lead to increased borrowing costs and dampened investor demand, as seen in S&P's 'BB' rating with 'CreditWatch Negative' in 2021. On the other hand, labor market dynamics, particularly the labor shortage and wage inflation, can affect economic growth and investor confidence. If job vacancies persist, wage inflation may reduce consumption, slowing economic growth and potentially impacting Rakuten's earnings and creditworthiness.

Rakuten's ability to access global capital markets and secure favorable terms for future bond issuances has been bolstered by their past bond offerings. In 2024, Rakuten issued USD-denominated senior notes due in 2027, raising USD 1.8 billion at an offering price of 97.830% of the principal amount and an interest rate of 11.250% per year. This issuance, handled by Keiji Hatano, showcases Rakuten's capacity to tap into overseas markets, particularly the United States, Europe, and Asia. Hatano's extensive experience in capital markets and mergers & acquisitions has likely contributed to Rakuten's success in securing favorable terms for their bond issuances.



As an investor, I'm torn between the allure of potentially higher yields from Rakuten's hybrid notes and the inherent risks associated with a speculative 'BB' rating and CreditWatch Negative status. While I admire Rakuten's strategic acquisitions and global expansion ambitions, I can't help but wonder if the company's financing uncertainty will ever subside. Only time will tell if Rakuten's hybrid notes will prove to be a risky path to capital or a savvy move to secure much-needed funding. For now, I'll keep my eyes peeled and maintain a balanced portfolio, combining growth and value stocks, and sticking to my investment values: stability, predictability, and consistent growth.

In conclusion, Rakuten's planned return to the dollar bond market with hybrid notes is a risky path to capital, but the company's past bond offerings and access to global capital markets offer some reassurance. Geopolitical tensions and labor market dynamics could further impact the yield and demand for these notes. As an investor, I remain cautious but open to the potential opportunities and risks that Rakuten's hybrid notes may present.