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Related Issuers
Rating Action:

Moody's downgrades SoftBank Group to Ba3; places ratings on review for further downgrade

 The document has been translated in other languages

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 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.

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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Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​
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