Rakuten burning cash on mobile network

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To sell stake in supermarket chain Seiyu to KKR

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Rakuten says will accelerate asset divestitures

(Adds Rakuten's cumulative loss, share performance)

By Sam Nussey

TOKYO, May 12 (Reuters) - Japan's Rakuten reported a first quarter operating loss of 76.2 billion yen ($564 million) on Friday, hit by its money-losing mobile business.

The e-commerce and fintech group posted a January-March 2023 loss of 102.7 billion yen for the mobile business, although that was narrower than in the same period a year earlier.

Rakuten founder and CEO Hiroshi "Mickey" Mikitani originally outlined plans to become Japan's fourth major mobile carrier, promising to create a low-cost nationwide network by using cloud-based software and commoditised hardware.

However, the company has burned cash funding the build-out, with analysts flagging Rakuten's struggle to take market share from cash-rich incumbents known for high-quality networks.

Mikitani has offloaded stakes in core businesses, selling shares in Rakuten and moving to float the group's securities and banking units.

Such "parent-child" listings, often frowned on in other economies, are common in Japan.

Rakuten said on Friday it will sell its stake in supermarket chain Seiyu to U.S. private equity firm KKR & Co Inc for 22 billion yen just three years after agreeing to buy the shares from Walmart Inc.

In net income terms, Rakuten has now lost 735 billion yen in a little over four years, having posted an annual loss for the last four years running, including a record loss last year, according to Refinitiv data.

Rakuten has also taken on debt.

The group has some 400 billion yen in bonds due by 2024 and a further 430 billion yen in 2025, Refinitiv data showed.

U.S.

dollar-denominated bonds issued in January have an annual interest rate of more than 10%.

The group will continue "acceleration of asset divestitures such as minority investments" along with other capital raising measures, an earnings presentation said.

S&P Global Ratings, which rates Rakuten's debt "junk", in January cited the "prospect of deeply negative free operating cash flow ... and very weak financial standing continuing in the nonfinancial unit in the coming 12 months".

Over the last 3 years, Rakuten shares have returned a negative 27%, including dividends, compared to a 52% positive return in the TOPIX index when dividends were taken into account.

($1 = 135.0500 yen) (Reporting by Sam Nussey; Editing by Christopher Cushing and Alexander Smith)

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