Rakuten said to pick Goldman, Daiwa for banking unit IPO

Rakuten said to pick Goldman, Daiwa for banking unit IPO
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(Sept 21): Rakuten Group Inc has chosen Goldman Sachs Group Inc and Daiwa Securities Group Inc as lead managers for its banking unit’s initial public offering (IPO), people familiar with the matter said, as the online retailer chases financial technology (fintech) growth to counter mounting losses.

Rakuten is preparing to list its banking unit with a valuation of around ¥300 billion (US$2.1 billion or RM9.49 billion) to ¥400 billion in an IPO as early as December, people familiar with the matter said, asking not to be named as the matter is private. Deliberations are ongoing and details of Rakuten Bank Ltd’s offering, including the bank manager line-up and size, could still change, they said.  

A spokesperson for Rakuten declined to comment, as did representatives of Goldman and Daiwa.

The bank’s planned listing on the Tokyo Stock Exchange is part of a push by Rakuten to expand in financial services. Stiff competition from Amazon.com Inc is capping the Japanese company’s core e-commerce revenues, while aggressive promotions for its mobile unit are saddling the company with losses. 

Rakuten’s fintech segment is increasingly driving growth at a company that remains largely moored in Japan, despite its ambitions to expand overseas. The company’s credit card, bank, securities and insurance businesses together constituted its biggest earner of operating income in the April-June quarter. Rakuten is separately preparing to list its securities unit. 

“It makes sense for Rakuten to raise money to help the banking unit grow further. The combination of its e-commerce operations and fintech makes the company a strong, attractive player in Japan,” said Morningstar analyst Kazunori Ito. 

Hiroshi Mikitani, the company’s chief executive officer and founder, had bet big on wireless services by building a fourth mobile network in a saturated market controlled by NTT Docomo Inc, KDDI Corp and SoftBank Group Corp’s wireless unit SoftBank Corp. That costly wager has resulted in continued losses at a company that had for years held its own against Amazon. 

Rakuten’s quarterly operating loss widened from a year ago, prompting S&P Global Ratings to slap the company with a negative credit outlook. The Japanese company’s non-financial unit is expected to be “deeply negative” of free operating cash flow in the coming 12 to 18 months, as improvement in its mobile business is further delayed, S&P said. 

The mobile unit’s losses are a result of “miscalculations that cannot be reversed, and more cash will be needed over the long term”, Ito said.