Receive free updates from SoftBank Group Corp
We will send you a MyFT Daily Summary e-mail gathering the latest news from SoftBank Group Corp each morning.
SoftBank has asked Moody’s to remove all of its bond ratings on the Japanese conglomerate, after the rating agency issued a two-notch downgrade that reduced its debt to junk status.
The group led by Masayoshi Son, the Japanese risk-seeking dealmaker, immediately accused Moody’s on Wednesday of having “biased and mistaken views.”
The downgrade came two days after SoftBank said he planned to sell $ 41 billion of its assets to repay its heavy debt and considerably increase the scale of a share buyback.
The actions triggered a 55% rise in SoftBank’s stock price, which fell to its lowest level in four years last week as investors panicked over its high exposure to debt.
Moody’s cited SoftBank’s “aggressive financial policies” for its decision to downgrade its rating from Ba1 to Ba3, saying the value of the group’s portfolio would be reduced if it sold its lucrative stakes in Chinese e-commerce group Alibaba and Sprint during market volatility caused by the coronavirus pandemic.
“Asset sales will be tough in the current financial market downturn, with valuations falling and a flight to safety,” Motoki Yanase, senior credit manager at Moody’s, said in a statement.
The company retaliated by saying: “[SoftBank Group] believes that Moody’s rating action is based on overly pessimistic assumptions about the market environment and on the misunderstanding that SBG will liquidate assets quickly without any careful consideration. “
The downgrade could increase borrowing costs for the group, which has $ 55 billion in net debt. Yields on SoftBank’s perpetual bonds, which have no maturity date, topped 11% after a sell-off on Wednesday morning.
Flight revealed This week, Mr Son explored an attempt to privatize the company over the weekend with investors, including activist hedge fund Elliott Management, before choosing to proceed with a plan to sell its assets.
While the company has not disclosed what it will sell, analysts expect the sale to be a mix of its shares in U.S. operator Sprint following its merger with T-Mobile, Alibaba and its national mobile unit listed on the Tokyo market.
People close to the company said the choice of assets would change depending on market conditions.
This month, rating agency S&P Global downgraded its outlook on SoftBank to negative after also voicing concerns over the group’s earlier plan to achieve a small share buyback.
But following SoftBank’s announcement on Monday, S&P said the huge asset sale had “the potential to ease the downward pressure on its credit quality” and reduce its debt by $ 2 billion. yen ($ 18 billion).
“As much as we hate to take sides, we just don’t follow Moody’s reasoning here,” said Mary Pollock, analyst at research firm CreditSights.
But Ms Pollock said she believed the rating agency was behind in reducing the Japanese group’s rating.
“We would go so far as to say that Moody’s uses the [SoftBank Group] announcement of asset sale as an excuse to re-evaluate an overdue credit rating, ”she said.
While its debt to cash flow means Western rating agencies classify SoftBank as junk, the group enjoys an investment grade rating from the local Japanese rating agency, JCR.
SoftBank took advantage of this higher national credit rating to take on debt with retail investors. The group became last year the bigger transmitter of debt sold to “Ms. Watanabe,” the catch-all term for the Japanese military of retail investors, accounting for more than half of all outstanding retail bonds of companies and financial institutions in March of the last year.