SoftBank's $100 Billion Debt Spurs Call for Son to Curb Ambition

  • PineBridge says sale of Sprint should remain an option
  • BNP says SoftBank should set targets to improve finances

SoftBank Group Corp.’s debt is nearing $100 billion and billionaire Masayoshi Son plans to tap Japanese households for even more. Professionals are starting to suggest enough is enough.

Son’s company plans to sell 370 billion yen ($3 billion) in seven-year bonds to individuals this month, adding to net interest-bearing debt at the carrier that rose 17 percent in a year to 11.9 trillion yen as of Sept. 30. PineBridge Investments Japan said SoftBank should focus on bolstering its books now, while BNP Paribas SA, said its issuance is becoming “excessive.”

“I’d like to see SoftBank strengthen its finances at this point,” said Tadashi Matsukawa, Tokyo-based head of fixed-income investment at PineBridge. The company should focus on turning around Sprint Corp. before engaging in other large-scale acquisitions and, if they can’t, a sale of the U.S. business should be an option, he said.

SoftBank is struggling to return the U.S.’s fourth-largest carrier Sprint to profit after selling about 2.5 trillion yen in bonds in the Japanese market since agreeing to the purchase in October 2012. Moody’s Investors Service on Sept. 15 cut Sprint’s rating by two levels to the sixth-lowest non-investment grade, citing concern about the American company’s ability to refinance upcoming debt “absent a much stronger commitment from SoftBank.”

Takeaki Nukii, a spokesman at SoftBank, said the company isn’t disclosing detailed financial targets, but will improve its credit standing over the medium-to-long term. It will manage the business with an appropriate level of leverage, he said in an e-mail.

Son’s Confidence

While SoftBank owns more than 83 percent of Sprint, the Japanese carrier has sought to keep the U.S. business as a stand-alone self-funding entity. Moody’s said in July it planned to include Sprint in its evaluation of SoftBank’s financial strength, given the Tokyo-based firm’s large initial investment in the telephone company.

SoftBank had operating income of 342.2 billion yen in the three months through September after it added wireless customers at home, making up for widening losses at the U.S. unit.

Son said on an earnings call on Nov. 4 that he had become more confident about Sprint’s recovery. The U.S. carrier plans to reduce costs by about $2 billion on a sustainable basis and will redeem bonds from next year with savings and from funds provided by a newly established handset leasing company, according to the founder.

“If SoftBank wants to improve its standing with fixed-income investors, I’d like to see them set targets for improving their finances,” said Mana Nakazora, the chief credit analyst in Tokyo at BNP Paribas. She recommends investors buy SoftBank’s bonds, and said Sprint’s debt is even more appealing given higher spreads.

Higher Yield

The yield on SoftBank’s 450 billion yen subordinated debt due in 2022 was 13 basis points higher at 2.63 percent as of Nov. 17 compared with the coupon at the time of issue in January. Bonds belonging to Sprint that mature the following year offer 10.6 percent, according to data compiled by Bloomberg.

Son has reaffirmed his commitment to Sprint in recent months after saying earlier this year he had, at one time, considered selling the business. The billionaire’s plan to buy T-Mobile US Inc. to take on larger Verizon Communications Inc. and AT&T Inc. came to naught last year in the face of regulatory resistance.

Exit Strategy

SoftBank’s probability of debt non-payment within one year has risen to 0.21 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, based on the data.

With Sprint struggling, PineBridge’s Matsukawa isn’t the only one who thinks selling Sprint should remain an option for SoftBank. The U.S. company posted a net loss for the fiscal second quarter that was more than twice the average projected by analysts, after using price-cutting promotions to attract new subscribers.

“Management resources have been tied up in Sprint, a unit that threatens to drag on the group’s finances,” Satoru Kikuchi and Yu Sato, analysts at SMBC Nikko Securities Inc., wrote in a report this month. “An exit strategy for Sprint is the key to unlocking SoftBank’s growth potential.”

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