S&P Global has downgraded SoftBank’s long-term credit rating further to junk status, with the Japanese group’s chief financial officer slamming the downgrade as “severely illogical”.
Yoshimitsu Goto questioned the decision after the ratings agency warned on Tuesday that assets in SoftBank’s portfolio were riskier due to the massive sale of its Alibaba stake, saying its cash position had grown from 2.3 trillion yen to 2.3 trillion yen. to 5.1 trillion yen ($36.8 billion) over the past year.
“I think we can say that this downgrade will have no impact on our ability to raise capital,” Goto told the FT, noting that SoftBank has cash reserves to redeem its bonds over the next six years.
S&P’s highest non-investment rating, double B+, was downgraded to double B after SoftBank’s tech-heavy Vision Fund reported a record annual investment loss of $39 billion this month.
“Volatility in its portfolio and rising asset risk have negatively impacted the group,” S&P said.
The dismal performance of its technology investments over the past two years has forced SoftBank to play defensively. It has halted nearly all new Vision Fund investments and is preparing to raise more cash by listing its British chip designer Arm in New York later this year.
“Over the past year, our disciplined defensive financial management has strengthened our financial position unprecedentedly,” SoftBank said on Tuesday. “It is very regrettable that our financial soundness has not been properly assessed and we will continue our dialogue with S&P.”
The Japanese group sold about $7.2 billion worth of shares in Chinese e-commerce group Alibaba last quarter via prepaid forward contracts after a record $29 billion sell-off last year. SoftBank said earlier this month that it had “effectively” used all of its remaining stake in Alibaba to raise funds.
As a result, the proportion of SoftBank’s fund business investing in unlisted stocks rose to nearly 40 percent, prompting S&P to warn of its higher vulnerability to changes in the external environment.
SoftBank said the proportion of listed assets is expected to increase “significantly” after Arm’s blockbuster listing. Investors in the US, UK and Japan told the Financial Times they valued Arm at between $30 billion and $70 billion.
In addition to selling its stake in Alibaba, the group announced on Monday the sale of Fortress Investment Group to an affiliate of Abu Dhabi’s sovereign wealth fund and the asset manager’s own employees.
Standard & Poor’s said on Tuesday that SoftBank’s asset liquidity would be “substantially improved” if Arm went public, but the ratings agency did not include an IPO in its base case, noting uncertainty about the timing and value of the listing.
SoftBank’s relationship with the rating agencies has been rocky. In 2020, the group asked Moody’s to cancel all of the Japanese conglomerate’s bond ratings after the rating agency issued a two-notch downgrade, taking its debt further down to junk status. At the time, it accused Moody’s of having “bias and erroneous views.” Fitch does not have a rating for the group.
Goto said SoftBank would not seek to sever ties with S&P, saying the latest downgrade bears no resemblance to Moody’s decision three years ago, noting its longstanding relationship with the ratings agency. He added that SoftBank “strongly urges” S&P to consider an upgrade once Arm’s IPO closes later this year.