SoftBank Group Corp. issued a sharp rebuke after S&P Global Ratings cut its long-term credit rating a notch further into junk territory, citing the Japanese tech conglomerate’s exposure to private market valuations and other external risk factors.
S&P said that SoftBank’s credit risks are rising because it’s selling off public assets such as Alibaba Group Holding Ltd. and increasing its exposure to private startups with more volatile valuations as a result. It downgraded the company’s rating to BB from BB+. SoftBank shares fell as much as 1.4% in early Tokyo trading.
“Asset risk in SoftBank Group Corp.’s investment portfolio is rising more than we had assumed; its liquidity and creditworthiness are likely to remain materially weakened for the next year or so,” the agency wrote in its report.
SoftBank criticized the decision and argued the credit-rating agency had failed to accurately analyze its circumstances. The Tokyo-based company contended that selling off assets like Alibaba in exchange for cash is clearly better for its balance sheet stability.
“Over the past year, our strict defensive financial management has strengthened our financial position as never before,” the company said in its own statement. “It is extremely regrettable that our financial soundness was not properly assessed, and we will continue our dialogue with S&P.”
In an interview after the agency’s decision, Chief Financial Officer Yoshimitsu Goto said the rating cut will not impact SoftBank’s borrowing costs nor the way it manages its balance sheet. Given the company’s ample cash reserve of over ¥5 trillion, the company won’t need to issue new bonds for a while, said Goto.
SoftBank will still need to refinance bonds that were sold to retail investors which are coming due during the March quarter next year, according to Goto. Only time will tell where yields trade around that time, but SoftBank’s coupon rate for bonds sold to individuals are linked to Japan Credit Rating Agency Ltd.’s ratings and not those of the S&P, he said.
If SoftBank sees weaker demand for its bonds, “we can always adjust the timing of any fresh issuances,” Goto told Bloomberg News in a video call.
This is not the first time SoftBank has fought back against credit-rating firms. It has had a years-long clash with Moody’s Investors Service to which it has not provided information since March 2020.
“We’ve had respect for the S&P,” said Goto. “It’s too bad they came to such an unreasonable conclusion.”
(Updates to add share price move in second paragraph and SoftBank CFO’s remarks throughout)
