SoftBank’s long-term debt rating cut deeper into junk status by S&P Global

S&P Global has cut SoftBank’s long-term credit rating deeper into junk territory, a downgrade the Japanese group’s chief financial officer lambasted as “seriously lacking in logic”.

After the 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 its cash position had increased from ¥2.3tn to ¥5.1tn ($36.8bn) over the past year.

“I think we can say that there will be no impact on our fundraising ability” from this downgrade, Goto told the Financial Times, noting that SoftBank had 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 came after SoftBank’s tech-heavy Vision Funds this month posted record annual investment losses of $39bn.

“The volatility of its investment portfolio and rising asset risk drive the negatives for the group,” S&P said.

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

“Over the past year, our strict defensive financial management has strengthened our financial position as never before,” SoftBank said on Tuesday. “It is extremely regrettable that our financial soundness was not properly assessed, and we will continue our dialogue with S&P.”

The Japanese group sold about $7.2bn worth of shares in Chinese ecommerce group Alibaba in the last quarter through prepaid forward contracts after a record $29bn selldown last year. SoftBank said earlier this month that it had “effectively” used all of its remaining shares in Alibaba for financing.

As a result, the proportion of SoftBank’s fund business that invests in unlisted shares has risen to nearly 40 per cent, prompting S&P to warn of higher vulnerability to changes in the external environment.

SoftBank said the proportion of listed assets was expected to increase “significantly” following Arm’s blockbuster initial public offering. Investors in the US, UK and Japan have told the FT that they have applied valuations to Arm of between $30bn and $70bn.

In addition to the selldown of its stake in Alibaba, the group also announced on Monday that it was selling Fortress Investment Group to an arm 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 “improve greatly” if Arm was listed but the rating agency did not include the IPO in its base-case scenario, noting uncertainty over the timing and value of the listing.

SoftBank has held a rocky relationship with rating agencies. In 2020, the group demanded that Moody’s remove all of its bond ratings on the Japanese conglomerate, after the rating agency issued a two-notch downgrade that cut its debt deeper into junk status. At the time, it accused Moody’s of having “biased and mistaken views”. Fitch does not have a rating on the conglomerate.

Goto said SoftBank would not seek to cut off ties with S&P, saying the latest downgrade had no similarity with Moody’s decision three years ago and pointing to its longstanding ties with the rating agency. SoftBank was “strongly urging” S&P to consider an upgrade once Arm’s IPO is completed later this year, he added.