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25 Mar 2020
Tokyo, March 25, 2020 -- Moody's Japan K.K. has downgraded SoftBank Group Corp.'s
(SBG) corporate family rating (CFR) and senior unsecured rating to Ba3
from Ba1, and its subordinate rating to B2 from Ba3.
At the same time, Moody's has placed the ratings under review
for further downgrade.
The affected ratings and issuers are listed at the end of this press release.
The rating action follows SBG's announcement on 23 March 2020 that
it will monetize up to JPY4.5 trillion (about $41 billion)
of its investment portfolio and use the proceeds to repurchase up to JPY2
trillion ($18 billion) of its own shares. It will use the
remaining JPY2.5 trillion ($23 billion) to pay back its
debt at the holding company. The company plans to execute these
transactions over the next four quarters.
SBG's latest share repurchase plan is four times the JPY0.5
trillion share repurchase it announced less than two weeks ago.
RATINGS RATIONALE
The two-notch downgrade to Ba3 reflects SBG's aggressive
financial policy, as reflected by the unexpected size and apparent
urgency of the rapid series of share repurchases, just as the drop
in the stock market has put the value and liquidity of its portfolio value
under stress.
"Asset sales will be challenging in the current financial market
downturn, with valuations falling and a flight to quality,"
says Motoki Yanase, a Moody's Vice President and Senior Credit
Officer.
In particular, the value and credit quality of SBG's portfolio
would deteriorate if the company reduces some of its most liquid and highly-valued
listed investments, such as its stakes in Alibaba Group Holding
Limited (A1 stable), SoftBank Corp. and Sprint Corporation
(B2, review for upgrade). It is unclear why SBG is undertaking
such a dramatic recapitalization during a time of severe stock and market
volatility. Monetizing a significant part of its investment at
this time risks a discount as well as a deterioration in the quality and
value of its remaining portfolio.
The review for further downgrade considers the volatile capital market
conditions that could weaken the valuation of SBG's investee companies,
hinder the execution of its recapitalization plan, and weaken SBG's
leverage and liquidity position.
Moody's review will focus on (1) the extent to which the fall in
financial markets erodes the value and credit quality of the investment
portfolio that covers SBG's debt; (2) the timing and the amount
of asset sales the company is able to execute under the current market
conditions, as well as the credit quality of its remaining investment
portfolio; and (3) the change in SBG's capital structure as
it repurchases stock, pays down debt and increases secured obligations
such as margin loans.
In addition, Moody's recognizes SBG's substantial JPY1.7
trillion (about $15 billion) of cash balance that covers the next
two years' scheduled debt maturities. Downward rating pressure
would build if this liquidity cushion weakens.
Given the ratings are on review for downgrade, Moody's does not
expect upward rating pressure in the foreseeable future. An upgrade
is possible longer term if the SBG executes on its recapitalization and
demonstrates greater transparency and sustainability of its assets and
capital structure.
Moody's would consider a further downward rating action if 1) there
is a significant deterioration in the credit quality of SBG's investee
companies, including difficulty in turning around WeWork; 2)
cash held at the holding company level diminishes, such that its
cash and committed credit facilities no longer cover two years of debt
maturities; and 3) there is increase in debt, including margin
loans and crystallization of legal or other contingent obligations.
The principal methodology used in these ratings was Investment Holding
Companies and Conglomerates (Japanese) published in August 2018.
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 engaged in various businesses,
including telecommunications, internet and other technology businesses.
The following ratings are affected by today's rating actions:
Issuer: SoftBank Group Corp.
.... Corporate family rating, downgraded
to Ba3 from Ba1, review for further downgrade
.... Senior Unsecured (Foreign) Regular Bond/Debenture,
downgraded to Ba3 from Ba1, review for further downgrade
.... Subordinate (Foreign), downgraded
to B2 from Ba3, review for further downgrade
.... Outlook, changed to rating under
review from stable
REGULATORY DISCLOSURES
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
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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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Motoki Yanase
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.
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