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Japan-Based Rakuten 'BBB-' Ratings Kept On CreditWatch Negative On Financing Uncertainty

  • Rakuten's nonfinancial unit will likely have negative free operating cash flow totaling nearly ¥1 trillion over the coming two years because of upfront investments in its mobile business.
  • We need more time to examine the impact on the company's operating performance and key financial ratios because its financing plans remain somewhat unclear and it has so far raised only about ¥242 billion in capital.
  • We are keeping our 'BBB-' long-term ratings on Rakuten on CreditWatch with negative implications.
  • We intend to resolve the CreditWatch placement in about three months after examining measures to offset negative cash flow and their effects on finances and liquidity. If we view the financing as insufficient, we may downgrade Rakuten one notch to 'BB+' upon resolving the placement.

TOKYO (S&P Global Ratings) April 9, 2021--S&P Global Ratings today said it has kept its 'BBB-' long-term issuer and issue credit ratings on Japan-based internet services company Rakuten Group Inc. on CreditWatch with negative implications. We placed them on CreditWatch on Feb. 18, 2021, based on our expectation that upfront investments in the company's mobile business would produce far more negative free operating cash flow (FOCF) from its nonfinancial unit than we had assumed.

We have kept the ratings on CreditWatch because we need more time to examine the impact that measures to offset the investments will have on Rakuten's operating performance and key financial ratios. We have yet to see the full picture of financing plans intended to make up for the expected deeply negative FOCF in the company's nonfinancial unit.

We expect the nonfinancial unit's negative FOCF to total nearly ¥1 trillion over the coming two years or so, compared with about negative ¥290 billion in fiscal 2020 (ended Dec. 31, 2020). This is because Rakuten has substantially increased capital expenditures in its mobile business to speed an upgrade of its communications network. It raised ¥242.3 billion through third-party share allocations in March 2021. However, this amount falls significantly short of the figure needed to cover the expected deficit.

We expect Rakuten to undertake various financing initiatives in the coming months to ease the investment burden, but many of the details remain unclear. The company's liquidity could worsen substantially without effective financing.

We intend to resolve the CreditWatch placement in about three months after examining the scale of the nonfinancial unit's negative FOCF, the progress Rakuten makes in attempting to cover the deficit, and the effect on its liquidity and finances.

We may downgrade Rakuten one notch if we think its liquidity and financial standing will not recover swiftly despite its financing efforts.

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A Japanese-language version of this media release is available on S&P Global Research Online at www.researchonline.jp, or via CreditWire Japan on Bloomberg Professional at SPCJ <GO>. Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings referenced herein can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column.

Primary Credit Analyst:Makiko Yoshimura, Tokyo (81) 3-4550-8368;
makiko.yoshimura@spglobal.com
Secondary Contact:Hiroki Shibata, Tokyo + 81 3 4550 8437;
hiroki.shibata@spglobal.com

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