SoftBank Corp. (9984), led by billionaire Masayoshi Son, had its credit rating cut to junk by Moody’s Investors Service after completing its $21.6 billion acquisition of a controlling stake in Sprint Corp. (S)
The rating was cut to Ba1, the highest noninvestment grade, from Baa3, Moody’s said in a statement today. The ratings service took the action about two weeks after a similar move by Standard & Poor’s.
Son is using the acquisition of Sprint to tap U.S. wireless customers and help fulfill his ambition of making Tokyo-based SoftBank the world’s biggest mobile-phone operator. The billionaire won a bidding war for Sprint, the third-largest U.S. carrier, when it raised its takeover price and Dish Network Corp. (DISH) abandoned a competing proposal.
The acquisition “will significantly weaken SoftBank’s financial flexibility,” Moody’s said in the statement. The company also may have to extend additional finance to help execute its capital spending plan for Sprint of $16 billion for 2013 and 2014, it said.
SoftBank reported 1.2 trillion yen ($12 billion) in short-term borrowings as of March 31 and 1.7 trillion yen of long-term debt, according to data compiled by Bloomberg. Outstanding debt includes 130 billion yen of 1.24 percent bonds maturing on Sept. 17.
A lower credit rating indicates a higher risk of a default and can raise borrowing costs.
“SoftBank’s borrowing increased and the rating company has reflected that so it’s unlikely that it will go down further,” said Hideki Yasuda, an analyst at Ace Securities Co. in Tokyo. “SoftBank needs to increase Sprint’s subscribers. A little more time is needed to see whether it goes well.”
Son has forecast record operating income as acquisitions and new subscribers using Apple Inc.’s iPhone help stoke earnings. The company bought local competitor EAccess Ltd. to meet bandwidth demand for smartphones.
Operating profit, or sales minus the cost of goods sold and administrative expenses, for SoftBank’s domestic businesses probably will exceed 1 trillion yen in the year started April, up from 745 billion yen a year earlier, the company said April 30.
SoftBank shares rose 4 percent to 6,450 yen at the close of trading in Tokyo before the Moody’s statement. Sprint fell 0.8 percent to $6.20 at 9:44 a.m. in New York.
Moody’s and S&P put the ratings of Japan’s third-largest carrier on review in October, saying a cut to below investment grade was possible. Japan Credit Rating Agency Ltd. cut SoftBank to A- from A earlier this month.
SoftBank paid $16.6 billion to shareholders of Overland Park, Kansas-based Sprint and is injecting $5 billion of new capital into the target for a 78 percent stake.
SoftBank plans capital spending for Sprint of $8 billion this year and in 2014 before dropping to $6 billion annually for the four years after that.
Sprint separately acquired Clearwire Corp. a mobile broadband company, to gain access to wireless airwaves. SoftBank needs the spectrum to roll out a fourth-generation network in the U.S. to challenge Verizon Wireless and AT&T Inc. (T)
Son is the 90th-richest person in the world with a net worth of $11.4 billion, according to the Bloomberg Billionaires Index. His fortune has increased by $2.4 billion this year.
SoftBank wants to replicate its domestic success with Sprint’s 55.2 million subscribers by improving networks and services, Son said. Annual savings at Sprint will be about $2 billion in the first four years from cost cutting, he said at SoftBank’s June 21 annual shareholder meeting.
SoftBank, founded in 1981, has made almost 100 purchases since 2000, according to data compiled by Bloomberg. The company owns stakes in more than 1,000 Internet operations, including Yahoo Japan Corp. (4689), Alibaba Group Holding Ltd. and Ustream Inc.
To contact the reporter on this story: Takashi Amano in Tokyo at email@example.com