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Rakuten weighs $1.8bn bond issue for mobile service launch

Online retailer opts for subordinated debt to ease financial health concerns

Online retailer Rakuten needs to raise funds as it prepares to launch its mobile phone service in October 2019.

TOKYO -- Virtual mall operator Rakuten will issue as much as 200 billion yen ($1.86 billion) to prepare for its entry into Japan's mobile phone service market.

Rakuten plans to launch its service in October 2019 and invest about 600 billion yen to build the necessary infrastructure, including a nationwide wireless network. It will finance the investment with subordinated debt, to be issued as early as June, and bank loans worth 400 billion yen.

The Japanese online retailer will issue subordinated bonds for the first time as it seeks to prevent its financial health from deteriorating. That type of debt ranks lower in priority than ordinary bonds in terms of obligations to repay creditors and thus can be partially counted into capital.

In an e-commerce battle with Amazon Japan and other rivals, Rakuten's investment has been ballooning, weighing on its earnings. Rakuten's capital ratio had fallen to 41% at the end of 2017 on a nonconsolidated basis excluding the company's financial operations, from 53% two years earlier.

Meanwhile, demand for subordinated bonds has been soaring amid the current ultralow interest rate environment, since their yields are higher than those of ordinary corporate bonds. Nomura Real Estate Holdings and property developer Hulic have each floated these bonds this year and beverage maker Suntory Holdings is planning to do so.

The issuances of subordinated bonds by nonfinancial companies, including Rakuten and others in the planning stages, have reached about 400 billion yen so far this year.

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