What to expect from the Rakuten Bank IPO

Written by Kapronasia || April 04 2023

Rakuten Bank is gearing up for what will likely be Japan’s largest IPO since 2018, scheduled for April 21. The country’s oldest digital bank, which was founded in 2001 back in the days of Web 1.0 and was then known as eBank, aims to raise US$800 million at a valuation of US$2.31 billion on the Tokyo Stock Exchange with the sale of 53.95 million existing shares of Rakuten Bank Ltd to both domestic and overseas investors and the issuance of 5.55 million new shares.

Rakuten Bank has taken a somewhat unusual path for a tech company in that it has delayed going public for two decades. Then again, belonging to Japan’s largest and most successful e-commerce company, it usually has had ready access to capital.

One reason for the IPO now is that Rakuten has sagged under the weight of its costly pivot to telecommunications and the company needs a way to raise cash cheaply in public markets to be able to compete effectively against U.S. internet giants moving into Japan’s economy. Rakuten has taken on a tough challenge in vying against established telecoms giants in Japan’s mobile business including NTT Docomo Inc., SoftBank Corp. and KDDI Corp. In late 2022, S&P cut Rakuten’s credit rating to BB from BB+, citing slow improvement in its mobile business and the detrimental impact on the company’s cash flow.

Proceeds from the IPO could potentially plug Rakuten Group’s “liquidity shortfall at its non-financial unit,” Sharon Chen, an analyst at Bloomberg Intelligence, told Bloomberg.

In 2022, Rakuten Group reported a massive net loss of ¥372.8 billion in 2022, more than double the ¥133.8 billion it lost in 2021. Rakuten’s cybermall and mobile phone group incurred a net loss for the fourth straight year mainly due to the cash it spent – some might say “burnt – on constructing to massive costs to build mobile phone base stations.

The IPO could also help Rakuten Bank expand its loan businesses and its products portfolio by bolstering the capital base. Rakuten Bank had more than 13 million accounts as of February, with a deposit balance of around 8.9 trillion yen, both the highest among Japanese online banks. The bank has attracted customers through Rakuten's wide-reaching e-commerce business, which includes shopping and travel sites and a rewards program.

“Through a listing, Rakuten Bank aims to implement growth strategies with a more autonomous management perspective, and to enable various growth and financial strategies, including its own fundraising,” the company said in a press release.