SoftBank’s Long-Term Debt Rating S&P Global Lowers to Junk Status

S&P Global downgraded SoftBank’s long-term credit rating in what the Japanese group’s CFO described as a “serious lack of logic.”

After the credit rating agency warned on Tuesday of higher asset risk in SoftBank’s investment portfolio due to the massive sale of its Alibaba stake, Yoshimitsu Goto questioned the decision, saying his cash position had increased from 2.3 billion yen to 5.1 billion yen ($36.8 billion). the past year.

“I think we can say that this downgrade will not affect our ability to raise funds,” Goto told the Financial Times, noting that SoftBank has cash reserves to redeem its bonds over the next six years.

The downgrade from double-B plus, S&P’s highest non-investment grade, to double-B comes after SoftBank technology giant Vision Funds posted a record annual loss of $39 billion this month.

“The volatility of the investment portfolio and the increase in asset risk have a negative impact on the group,” S&P said.

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The dismal performance of its technology investments over the past two years has forced SoftBank to be on the defensive. It has stopped almost all new Vision Fund investments and is preparing to raise more cash by listing UK chip designer Arm in New York later this year.

“Over the past year, our tight defensive financial management has strengthened our financial position more than ever,” SoftBank said on Tuesday. “It is extremely unfortunate that our financial stability was not properly assessed and we are continuing our dialogue with S&P.”

The Japanese group sold about $7.2 billion worth of shares in Chinese e-commerce group Alibaba through prepaid futures contracts last quarter, following a record sale of $29 billion last year. SoftBank said earlier this month that it had “effectively” used all of its remaining Alibaba shares for financing.

As a result, the proportion of SoftBank’s fund business that invests in unlisted stocks has risen to nearly 40 percent, making S&P more vulnerable to changes in the external environment.

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According to SoftBank, the share of listed assets is expected to increase “significantly” following the initial public offering of blockbuster Arm. Investors in the US, Britain and Japan told the FT they had used valuations for Arm of between $30bn and $70bn.

In addition to the sale of the Alibaba stake, the group also announced on Monday that it will sell Fortress Investment Group to a division of Abu Dhabi’s sovereign wealth fund and the asset manager’s own employees.

S&P said on Tuesday that SoftBank’s asset liquidity would be “significantly improved” if Armot went public, but the rating agency did not consider the IPO in its base case, noting uncertainty over the timing and value of the IPO.

SoftBank has a tough relationship with credit rating agencies. In 2020, the group demanded that Moody’s remove all of the Japanese conglomerate’s bond ratings after the rating agency issued a two-notch downgrade that cut its debt deeper into junk status. At the time, he accused Moody’s of having “biased and wrong views”. Fitch has no rating on the conglomerate.

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Goto said SoftBank is not seeking to sever ties with S&P because the latest downgrade bears no resemblance to Moody’s decision three years ago, pointing to its long-standing relationship with the rating agency. SoftBank has “strongly urged” S&P to consider an upgrade once Arm’s IPO is completed later this year, he added.