Exclusive-In Rakuten Bank's Downsized IPO, Investors Pushed For Details On Troubled Parent, Sources Say

Japan's Rakuten Bank Ltd amended the filing of its $625 million initial public offering (IPO) after investors pushed for details on the risks from its exposure to money-losing parent Rakuten Group Inc, two people said.

The investor questions, not previously reported, highlight how concerns about the e-commerce giant's losses and mounting debt cast a shadow on Japan's biggest IPO in more than four years that was initially expected to raise about $800 million.

Investors quizzed the lead manager Daiwa Securities Group Inc and other banks about risks from Rakuten Group as they sounded out investor demand for the offering, the people with direct knowledge of the matter said.

Most questions were from overseas institutional investors, the people said on condition of anonymity as the information is not public. A U.S. investor asked for details about transactions with other Rakuten companies, one of the people said.

"A substantial discount was ultimately seen as necessary," one of the people said, adding that a turmoil in the global banking sector at the time had also put investors on edge.

Rakuten Bank declined to comment beyond what it has already disclosed. Rakuten Group directed Reuters to Rakuten Bank.

A Daiwa Securities representative confirmed investors had asked about Rakuten Group's finances, adding that many investors were reluctant to invest in banks at a time when widening financial instability directly impacted the sector.

The deal "offered a price that would allow investors to buy with confidence", the Daiwa representative said.

CASH BOOST

The IPO will give a much-needed cash boost to Rakuten Group that has seen four years of losses from the costly build-out and struggles of its mobile phone business. In February, it reported a record annual loss of 372.8 billion yen.

The group has some 400 billion yen in bonds coming due by 2024, a regulatory filing shows.

Japan's largest internet bank by number of accounts is set to list on the Tokyo Stock Exchange on Friday after raising around 83.3 billion yen ($625 million).

Although short of the initial target, it is still Japan's largest IPO since December 2018, according to Refinitiv.

Rakuten Bank slashed the top of its indicative IPO price range by almost 30% to 1,400 yen on April 5, a day after disclosing investments in securitised assets linked to its parent's businesses, including 2.2 trillion yen ($16.3 billion) related to the credit card business, regulatory filings show.

Rakuten Bank also disclosed a 63.2 billion yen investment in securitised assets related to the struggling mobile business.

Neither amount had been outlined in the IPO prospectus filed on March 22, a comparison of the two documents showed.

It later priced the IPO at the top of the scaled-back range, valuing the bank at 238 billion yen.

Demand from overseas investors was so strong at the lowered price that bankers ultimately increased the portion of IPO available to overseas investors, filings showed.

The overseas portion was still more than 15 times oversubscribed, Daiwa said.

($1 = 134.8900 yen)