SoftBank's Bond Risk Jumps as Prospects Sour From U.S. to China

  • Alibaba, Sprint share drops wipe $16 billion in market value
  • Domestic earnings threatened by government push to cut bills

SoftBank Group Corp.’s bond risk has climbed to a three-year high as founder and chairman Masayoshi Son faces a perfect storm of troubles with its Chinese and U.S. investments and a push by the Japanese government to cut phone rates that threatens earnings at home.

The cost to insure the mobile carrier’s notes against nonpayment jumped 84 basis points in September to 260, the highest since November 2012, according to CMA prices. SoftBank is the riskiest company on the Markit iTraxx Japan credit-default swap index, which climbed 19 basis points in the period.

Billionaire Son saw the worth of his two biggest holdings plunge. A cooling Chinese economy has cut growth prospects for Alibaba Group Holding Ltd. and a turnaround at money-losing Sprint Corp. in the U.S. hasn’t yet materialized. Prime Minister Shinzo Abe’s comments about the nation’s mobile-phone rates being too high added to a plunge in SoftBank shares that wiped about $16 billion in market value last month.

“With market sentiment very weak, there are a lot of reasons for selling SoftBank and none for buying,” said Mana Nakazora, the chief credit analyst in Tokyo at BNP Paribas SA. “The slump in China bringing Alibaba down is one thing to worry about. The selloff of Sprint shares is another contributor.”

Billionaire founder faces headwinds in China, U.S. and Japan

SoftBank’s probability of debt non-payment within one year has risen to 0.24 percent from about 0.15 percent in mid-August, according to the Bloomberg default-risk model, which considers factors such as share prices and debt levels. The gauge suggests the carrier’s credit rating has dropped by one step to the second-lowest investment grade.

That contrasts with the evaluation of Moody’s Investors Service and Standard & Poor’s, both of which have given the highest junk score for the company’s debt.

Shares of SoftBank jumped 4.3 percent to 5,864 yen on Monday, paring the drop this year to 19 percent. The Topix stock index closed 1.3 percent higher.

Matthew Nicholson, a spokesman for SoftBank, declined to comment on the default-swap moves.

Alibaba Tumble

Alibaba dropped for the fourth straight month in September, erasing about $72 billion in market value as China’s slowing economy has raised concerns that sales will be muted during the biggest shopping days of the year. The Internet giant has gone through a dramatic reversal of fortune since holding the largest-ever initial public offering last year, with shares falling below their IPO price for the first time in August. SoftBank has a 32 percent stake in the Chinese company’s parent.

Sprint, which hasn’t made a profit in the past eight years, is eliminating jobs and cutting $2.5 billion in costs as its cash reserves dwindle. On Sept. 15, Moody’s downgraded much of the company’s debt several steps to Caa1, which is considered close to default.

Son, who bought the U.S. carrier for $22 billion in 2013, has reiterated his commitment to Sprint by raising SoftBank’s stake to about 83 percent. The holdings are now worth $2.1 billion less than the purchase price, according to Tokyo-based company’s website.

Inflation Burden

Prime Minister Abe has singled out Japanese carriers as part of his push to reduce the burden on households while spurring spending and inflation. Japan’s Communications Ministry this month will begin considering ways to cut mobile phone bills, following a request from the premier, according to its website.

“Overseas investors are concerned about Sprint shares while the domestic ones are worried about Abe’s comments on phone rates,” said Satoru Kikuchi, an analyst at SMBC Nikko Securities Inc. in Tokyo. “It’s a double-bind on SoftBank.”

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