By Rocky Swift and Junko Fujita
TOKYO (Reuters) – SoftBank Group Corp <9984.T> has built a global conglomerate of telecoms and tech companies on an ever-growing mountain of debt that major rating agencies categorise as junk.
SoftBank’s decision on Oct. 24 to spend more than $10 billion to bail out its office-sharing portfolio company WeWork has raised concerns about the group’s investment and governance standards. Jefferies downgraded SoftBank stock, saying the rescue is a case of “throwing good money after bad”.
Masayoshi Son’s company has 5.5 trillion yen ($51 billion) in outstanding bonds, according to Refinitiv data. Add to that 4 trillion yen in bank loans. By comparison, Japan’s entire corporate bond market is 65.8 trillion yen, according to the Japan Securities Dealers Association.
Years 2022 and 2024 are when the biggest chunks of SoftBank debt mature, 935 billion yen and 1 trillion yen respectively.
The company’s weighted average cost of debt is 3.7%, the seventh-highest among all companies on the Nikkei 225 Stock Average <.N255>, according to Refinitiv data. One way that the company has helped keep financing costs down is by appealing directly to retail investors in Japan, and to fans of its Fukuoka Hawks baseball team.
SoftBank has 2.1 trillion yen in outstanding Hawks bonds, which have been marketed toward retail investors and baseball fans. Interest rates on the debt range from 1.26% to 1.64%, compared to a simple average of 3.9% on SoftBank’s other outstanding bonds, according to company data.
Moody’s Investors Service and S&P Global rate SoftBank’s debt at Ba1 and BB+ respectively, both one step below investment grade for most institutional investors, or junk.
On the other hand, Japan-based rating agency JCR rates SoftBank A-, which is investment grade according to its scale.
Credit-default swaps protecting SoftBank’s debt for five years cost 234 basis points, the second highest among all Japanese corporates behind shipper Kawasaki Kisen Kaisha Ltd.
Moody’s calculations show that SoftBank’s interest coverage ratio is 1.3. That means the group’s income, mostly from the Japanese telecom unit SoftBank Corp <9434.T>, is enough to service its debt with just a bit left over.
What SoftBank has in its favour is very large stakes in listed companies that can be sold off if it needs to raise money in a hurry. The biggest asset by far is a 26% stake in China’s Alibaba Group <BABA.K> worth about $120 billion.
The size and liquidity of SoftBank’s investment portfolio, which stood at about $240 billion as of June, means the company has financial flexibility, Moody’s analyst Motoki Yanase said.
“From a leverage standpoint, SoftBank has some cushion and the ability to take on debt further,” he said.
($1 = 108.7600 yen)
(Reporting by Rocky Swift and Junko Fujita; Editing by David Dolan and Himani Sarkar)