Japan’s e-commerce giant Rakuten Inc. has been cut further into junk by S&P Global Ratings as the company struggles to find a way out of its debt-laden financial predicament.
The Tokyo-based online retailing firm was downgraded on Tuesday, June 23rd, 2020, to a BB+ rating, four levels below investment grade, citing “a deterioration in its business performance and expected cash flow, which has weakened its financial profile.”
Rakuten has suffered from the effects of the coronavirus pandemic, which has put a strain on its finances as the company has been unable to expand its customer base, and its revenues have been hit by the drop in consumer spending. In April, the company reported a 7.4 percent decline in year-on-year sales for the three months that ended March 31st.
The downgrade by S&P is the latest in a series of setbacks for Rakuten. In April, the company was hit with a credit rating downgrade from Moody’s Investors Service, which marked the third time the company’s credit rating had been cut in the past year.
Rakuten’s financial woes stem from a combination of factors, including its heavy debt load, which stood at ¥1.3 trillion ($12.3 billion) at the end of March 2020. The company has been trying to reduce its debt load by selling off some of its businesses and cutting costs, but the pandemic has made this more difficult.
The company’s struggles have been further compounded by a drop in the value of the Japanese yen, which has weighed on the company’s earnings. The yen had weakened against the U.S. dollar since March when the Bank of Japan implemented a negative interest rate policy to help support the economy amid the pandemic.
Rakuten’s ratings cut by S&P could make it more difficult for the company to raise money in the future. The downgrade could also lead to higher borrowing costs, as lenders may now view the company as a riskier borrower.
The downgrade from S&P could also have a negative impact on Rakuten’s stock price. The company’s shares have already lost nearly a third of their value since the start of the year, and the downgrade could lead to further losses in the short term.
Despite the downgrade, Rakuten remains committed to restoring its financial health. The company has indicated that it is taking steps to reduce its debt load and improve its profitability. It has also announced a restructuring plan that includes selling off some of its businesses and cutting costs.
Rakuten also remains confident in its long-term prospects. The company has been expanding its global reach, with recent investments in the U.S. and Europe, and has been increasing its focus on digital services. The company has also been investing in its core e-commerce business, with plans to launch a new online shopping mall in Japan.
Overall, Rakuten’s downgrade by S&P is a sign of the difficult times the company is facing due to the pandemic. While the downgrade could make it more difficult for the company to raise money in the future, it remains committed to restoring its financial health and is taking steps to improve its profitability.
