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Rating Action:

Moody's changes SoftBank Group's outlook to stable; affirms Ba3 ratings

 The document has been translated in other languages

08 Mar 2021

Tokyo, March 08, 2021 -- Moody's Japan K.K. has affirmed the Ba3 corporate family rating (CFR) and senior unsecured rating of SoftBank Group Corp. (SBG), as well as its B2 subordinate rating.

Moody's has also changed the outlook to stable from negative.

RATINGS RATIONALE

The change in the outlook to stable from negative reflects the progress of SBG's asset monetization program since it was announced in March 2020. The company has completed a number of asset sales totaling JPY 5.6 trillion that have increased clarity on the value of the core components in its investment portfolio. Additionally, favorable stock market conditions have bolstered the value of its portfolio and facilitated the execution of its asset sales and investments.

Compared with its initial plan of JPY 4.5 trillion, the company is currently above its asset sales target, although it is below target in applying those proceeds almost equally toward share repurchases and reducing its net debt.

The affirmation of SBG's Ba3 ratings reflects its good liquidity at the holding company level, which can cover scheduled debt maturities over the next two years, as well as its ownership of its highly valuable investment portfolio, including a 40% stake in SoftBank Corp. and a 25% stake in Alibaba Group Holding Limited (Alibaba, A1 stable).

These strengths are balanced against the ongoing substantial changes in SBG's credit profile as a result of its large investments and divestments, which could alter the value and quality of its investment portfolio, as well as its capital structure. The company's interest coverage is low at below 1x, although it has significant liquid resources on which it can draw to supplement income. The ratings also consider SBG's aggressive financial policy and associated governance concerns.

While the company has maintained enough cash to cover two years of debt maturities, which is appropriate for its rating level, it has not materially increased its cash on hand (around JPY2 trillion) from its asset sales because it has reinvested much of the proceeds. Moody's estimates that most of the reinvestment went into tradeable shares of listed US technology companies through SB Northstar LP.

The stable outlook reflects Moody's expectation that SBG's portfolio value is not deteriorating but changing, with its market value-based leverage (MVL) expected to range between 23% and 29%, and that the company will maintain good liquidity with its substantial cash balance.

Governance is a key rating consideration, with concerns that include (1) the scope and pace of changes on its balance sheet as strategies shift; (2) SBG's strong appetite for investments, which could be funded by complex financial arrangements with limited transparency; and (3) its dependence on its CEO and founder Masayoshi Son when it comes to key investment decisions, which presents key-person risk. Mr. Son owns about 26.9% of SBG and coinvests in SBG's investment vehicles, including SB Northstar. Mr. Son owns 33% of SB Northstar and SBG owns the remaining 67%.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Moody's will consider upgrading the ratings if SBG (1) resolves the above governance concerns; (2) establishes a track record of debt repayment -- particularly secured debt -- with asset sale proceeds; (3) adopts a simpler, more stable and transparent capital structure; and (4) sustains interest coverage above 1.5x and MVL around 20%. SBG's CFR remains constrained by its investment approach and dominant leadership of its CEO.

Moody's will consider downgrading the ratings if the credit quality and transparency of SBG's investee companies deteriorate, including a further decline in the company's ownership of (1) its dividend-paying SoftBank Corp. subsidiary, without a commensurate increase in stable dividends from other sources; or (2) Alibaba, without an increase in other liquid assets. In addition, Moody's will consider a downgrade if cash held at the holding company level diminishes, such that SBG's cash on hand no longer covers two years of scheduled debt maturities; or if the company's total debt increases or the proportion of secured debt rises. Downgrade pressure will also arise if material legal or other contingent obligations crystallize or governance concerns rise further.

The principal methodology used in these ratings was Investment Holding Companies and Conglomerates (Japanese) published in August 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1135855. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Tokyo, SoftBank Group Corp. is a Japanese holding company with subsidiaries in various businesses, including telecommunications, internet and other technology businesses.

The following ratings are affected by today's rating action:

..Issuer: SoftBank Group Corp.

....LT Corporate Family Rating, Affirmed at Ba3

....Senior Unsecured Regular Bond/Debenture (Foreign Currency), Affirmed at Ba3

....Subordinate Regular Bond/Debenture (Foreign Currency), Affirmed at B2

....Outlook, Changed To Stable From Negative

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are unsolicited.

a.With Rated Entity or Related Third Party Participation: NO

b.With Access to Internal Documents: NO

c.With Access to Management: NO

For additional information, please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Mariko Semetko
VP - Senior Credit Officer
Corporate Finance Group
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100

Mihoko Manabe
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100

Releasing Office:
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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