SoftBank attacks Moody’s after debt downgrade

SoftBank has 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, according to the Financial Times.

The group led by Masayoshi Son, the risk-seeking Japanese dealmaker, immediately accused Moody’s on Wednesday of having “biased and mistaken views”.

Masayoshi Son, leader of SoftBank’s Vision Fund

The downgrade came two days after SoftBank planned to sell $41bn of its assets to pay down its heavy debt load and to hugely increase the scale of a share buyback.

Those actions have triggered a 55% jump in SoftBank share price, which fell to a four-year low last week as investors panicked over its hefty debt exposure.

Read more: SoftBank to invest $100m in UK-based AI start-up Behavox

Moody’s cited SoftBank’s “aggressive financial policy” for its decision to cut its rating from Ba1 to Ba3, saying the value of the group’s portfolio would be reduced if it sold off its lucrative stakes in Chinese ecommerce group Alibaba and Sprint during the market volatility caused by the coronavirus pandemic.

“Asset sales will be challenging in the current financial market downturn, with valuations falling and a flight to safety,” says Motoki Yanase, Moody’s senior credit officer, in a statement.

The company hit back, saying: “[SoftBank Group] believes that Moody’s ratings action is based on excessively pessimistic assumptions regarding the market environment and misunderstanding that SBG will quickly liquidate assets without any thorough consideration.”

The downgrade may increase borrowing costs for the group, which has $55bn in net debt. Yields on SoftBank’s perpetual bonds, which have no maturity date, climbed above 11% after a selloff in Wednesday morning trading.

The FT revealed this week that Son explored an attempt to take the company private 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 revealed what it will sell, analysts expect the sale to be a mix of its shares in US carrier Sprint following its merger with T-Mobile, Alibaba, and its domestic mobile unit which is listed on the Tokyo market.

See also: Top executives at SoftBank’s $100bn Vision Fund set to leave

People close to the company said the choice of assets would change depending on market conditions.

This month, rating agency S&P Global cut its outlook on SoftBank to negative after it also raised concerns about the group’s earlier plan to carry out a smaller share buyback.

Moody’s cited SoftBank’s “aggressive financial policy” as it cut its rating from Ba1 to Ba3.

But following SoftBank’s announcement on Monday, S&P said the huge asset sale has “potential to ease the downward pressure on its credit quality” and reduce its debt load by JPY 2 trillion ($18bn).

“As much as we hate to pick sides, we do not follow Moody’s rationale here,” says Mary Pollock, an analyst at research firm CreditSights.

But Pollock believes the rating agency was behind the curve in cutting the Japanese group’s rating.

“We would go so far as to say Moody’s are using the [SoftBank Group] asset sale announcement as an excuse to re-rate a credit which was overdue a downgrade,” she tells the FT.

While its debt relative to cash flow means that western rating agencies class SoftBank as junk, the group has an investment-grade rating from the local Japanese rating agency, JCR.

SoftBank has taken advantage of this higher domestic credit rating to raise debt from retail investors. The group last year became the biggest issuer of debt sold to “Mrs Watanabe”, the catch-all term for Japan’s army of retail investors, accounting for more than half of all outstanding retail bonds from companies and financial institutions in March last year.