Asia’s fintech industry needs a win following a string of disasters in global public markets. Rakuten Bank, the largest internet bank in Japan, could revive the sector’s fortunes if its IPO, now planned for April, is a success and if the stock trades well in the secondary market.
For investment bankers, though, Rakuten’s domestic listing would only represent one step closer to making Asia fintech an attractive sector. The end goal is opening the US primary market, where companies can achieve much higher valuations – and where the fee pool for deals is much bigger.
Rakuten Bank’s parent, e-commerce and mobile telecom company Rakuten, announced in June 2022 its intention to list its fintech arm on the Tokyo Stock Exchange, and appointed Daiwa Bank and Goldman Sachs to underwrite the deal.
The original goal of a December listing was delayed, to the relief of bankers, amid the devastating rout in global stocks, especially tech stocks, and the related down-rounds by Klarna, Stripe and other privately held fintech companies.
Rakuten instead secured bridge funding in the form of a high-yield bond, raising ¥67 billion or $500 million in a two-year, 12 percent note sold to foreign investors.
However, Rakuten’s founder, Hiroshi Mikitani, remains eager to list the bank in order to revive the overall fortunes of the telecom, whose stock price has been anemic, partly because of losses in mobile phone sales to Japan’s increasingly elderly population.
The company IPOed in 2000 at about ¥4,300 per share and immediately traded down. It enjoyed a brief uplift in 2015, hitting ¥2,143 per share in April, but has declined since then, trading at a mere ¥687 as of February 17, 2023.
Strong fintech performance
The fintech arm performs well, however. It now has ¥8.6 trillion ($64 billion) in deposits across more than 13 million customer accounts. The parent company has been adept at leveraging its 36 million active users to sell financial products, such as remittances, foreign exchange, overseas deposits and credit for purchases on Rakuten’s marketplace.
Analyst Kirk Boodry of Redex Research says Rakuten Bank should be valued at more than ¥500 billion ($3.7 billion).
Writing on Smartkarma, Boodry said: “Rakuten Bank is a part of Rakuten’s fintech business, which seems to be under-appreciated by the market considering its revenue and EBITDA CAGRs of 16.0 percent and 12.2 percent over the last four years.” (Ebitda CAGR represent annual compound growth of earnings before various obligations, not net earnings.)
And taking a bank public at the beginning of a cycle of rising interest rates should also help. Banks can attract more deposits by offering higher rates, and in turn charge more on loans.
There is another factor that could help Rakuten Bank: scarcity. There are few quality fintech stocks available in the public market – in Japan or anywhere else in Asia.
For the most part, the IPOs of fintechs or of tech companies with strong fintech arms have been failures. Paytm’s domestic IPO in India: flop (the share price is down 59 percent from its November 2021 listing). GoTo’s Indonesia listing: terrible (down 67 percent since its IDX listing in April 2022). Grab’s SPAC: dismal (minus 70 percent since being merged with a Nasdaq-listed acquirer, in December 2020).
There is, however, one close comparable in the region: KakaoBank, from Korea. It is the only large, liquid and listed interbank in all of Asia Pacific.
It too has been a stinker, its stock price down 63 percent since the IPO in August 2021. But analysts are bullish on KakaoBank. Unlike its peers, KakaoBank makes money. It commands the wealthy, affluent, and (compared to Japan) young Korean market, where it can earn more than banks can in Southeast Asia’s emerging markets.
Daniel Tabbush, also writing on Smartkarma, says KakaoBank enjoys strong earnings and an improving net-interest margin (the difference between what it pays on deposits and what it accrues by lending). A strong deposit base means the bank does not need to tap capital markets to fund itself – also unlike other digital banks in the region.
For bankers, Rakuten Bank is the region’s only big-name fintech that’s ready to go IPO. But if it achieves a good valuation and its stock enjoys stable support in the aftermarket, it could pave the way for others in the region. If investors give KakaoBank another look, reversing its slide, this would only put more wind in the sails of Rakuten Bank.
Whether this translates into deals from the rest of the region, however, will depend on more than a successful TSE listing…as DigFin will explore in a follow-up article.