Son Invokes Do-or-Die Spirit in SoftBank U.S. Push: Japan Credit

SoftBank Corp.’s Masayoshi Son this month invoked the Samurai’s do-or-die spirit in his battle to be Japan’s biggest phone company and finance expansion in the U.S.

Son is offering 300 billion yen ($2.93 billion) of five-year notes to individual investors at a yield from 1.15 percent to 1.75 percent, according to a filing May 1. The company raised 700 billion yen from households last year within that range, lower than the average yield of 4.55 percent for similarly rated non-investment grade issuers globally as of yesterday, according to Bank of America Merrill Lynch data.

Son, whose company looks set to earn about $58 billion on his investment in China’s Alibaba Group Holding Ltd., reminded the public on May 7 of his 2006 threat to commit samurai-style hara-kiri suicide unless his company beat NTT Docomo Inc.’s earnings within a decade, a feat achieved last fiscal year. While he noted that the company’s sales agents had laughed at his promise, Son said the “hungry spirit” he invoked was what prompted his firm to acquire Sprint Corp. last year, as he considers a bid for T-Mobile U.S. Inc.

“For any company the prime focus is to fund at the lowest possible rate and we all know that SoftBank has an appetite for acquisitions,” said Peggy Furusaka, a Tokyo-based credit analyst who covers SoftBank at Moody’s Investors Service. The carrier’s low funding costs reflect its good operating performance and low interest rates in Japan, she said.

Junk Rating

Moody’s and Standard & Poor’s both rank SoftBank at their highest junk grade after cutting their evaluations of the Tokyo-based company last year following its acquisition of Sprint. SoftBank is rated A- by Japan Credit Rating Agency Ltd., its fourth-lowest investment level.

Sprint is expected to make a formal bid for T-Mobile in June or July, a person with knowledge of the matter said this month. Timotheus Hoettges, the chief executive officer of Deutsche Telekom AG, which owns T-Mobile, said May 8 that he doubts a merger of T-Mobile and Sprint could win regulatory approval anytime soon.

Son and Sprint Chief Executive Officer Dan Hesse got a skeptical response when they raised the possibility of Sprint buying T-Mobile U.S. with Federal Communications Commission Chairman Tom Wheeler on Feb. 3, and resistance in an earlier meeting at the Justice Department, according to people briefed on the discussions.

While Son declined to comment on a potential bid for T-Mobile on May 7, he showed little sign of being concerned that he may not be able to attain his next goal.

Life Wonderful

“Recently, I feel keenly that life is wonderful, isn’t it,” Son said. “Right now, I’m very passionate. I am looking towards the next goal, next dream.”

His company had net income of 527 billion yen in the 12 months to March 31, compared with NTT Docomo’s 465 billion yen, the first time for it to surpass the former state-owned carrier. Sales at Son’s company, founded in 1981 as a software wholesaler, also exceeded NTT Docomo’s for the first time.

At the end of March, NTT Docomo had 63.1 million wireless subscribers, KDDI Corp. served 40.5 million and SoftBank 35.9 million, according to data compiled by Bloomberg.

“Nobody can stop Son,” Mana Nakazora, the chief credit analyst in Tokyo at BNP Paribas SA, wrote in a report published May 8 in which she recommended the company’s debt. “The spread remains wide.”

SoftBank sold 50 billion yen in seven-year bonds to institutional investors last year at a yield premium of 128 basis points over government bonds. The spread has widened to 153 basis points as of yesterday, down from a high of 178 basis points following reports of Son’s ambitions to buy T-Mobile in a bid to take on AT&T Inc. and Verizon Communications Inc.

Downgrade Risk

“While there may be people who believe that SoftBank’s bonds are attractive if held to maturity, that doesn’t remove the risk of spreads widening on them, if there is a credit downgrade during that time,” said Tadashi Matsukawa, head of fixed-income investment at PineBridge Investments Japan Co.

Moody’s, S&P and JCR all have a “stable” outlook on SoftBank’s ratings, according to Bloomberg-compiled data.

The benchmark 10-year Japanese government bond yield has fallen 13 basis points, or 0.13 percentage point, to 0.605 percent this year as the Bank of Japan buys 7 trillion yen of the notes a month to spur inflation. The yen has gained 3 percent during the period to 102.28 per dollar as of 3:12 p.m. in Tokyo.

SoftBank’s bonds remain attractive for investors who are willing to hold the notes to maturity and accept potential price fluctuations, according to Toshiyasu Ohashi, the chief credit analyst in Tokyo at Daiwa Securities Group Inc.

Son said his goal is to overtake Toyota Motor Corp., Japan’s largest company, which had net income of about $18 billion last year.

“I don’t want to name other companies in different industries, but at least we are not the kind of company that settles for being number two or number three,” he said. “We always want to be number one.”

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