SoftBank Bond Risk Soars to Five-Year High on Sprint Doubts

  • Masayoshi Son's SoftBank is Japan's third-riskiest company
  • SoftBank reports third-quarter earnings on Wednesday

Investors are growing increasingly concerned about billionaire Masayoshi Son’s debt load at SoftBank Group Corp. as he struggles to turn around Sprint Corp. amid volatility in global markets.

The cost to insure SoftBank’s debt against default has risen 140 basis points this year to 395 basis points on Feb. 9, according to data provider CMA. That’s more than five times the increase in the Markit iTraxx Japan credit-default swap index and puts SoftBank at the June 2010 high of 395 basis points.

Son’s company already carries the second-highest debt load in Japan excluding financial firms and investors have fretted that he may have to add to those liabilities to support the money-losing U.S. carrier. SoftBank, whose shares fell last month to their lowest since the Sprint acquisition in 2013, will give more information on its progress when it reports fiscal third-quarter results Wednesday.

“As far as credit markets are concerned, Sprint is SoftBank’s number one problem,” said Mana Nakazora, the chief credit analyst in Tokyo at BNP Paribas SA. “The impression is that the turnaround is not going as well as Son would like us to think.”

Sprint is SoftBank’s second most valuable holding, trailing only its stake in Alibaba Group Holding Ltd. Sprint shares have fallen more than 25 percent this year through Tuesday, while those of Alibaba have slumped 24 percent.

In 2013, SoftBank paid $22 billion for a controlling stake in Sprint before later acquiring more stock. As losses mounted and the carrier lost its place as the third-largest in the U.S. to T-Mobile US Inc., the value of the investment dropped to about $8.8 billion, according to its website.

Signs of Recovery

SoftBank’s shares rebounded from their lowest in almost two years last month amid signs of progress at the U.S. carrier. Sprint raised its profit forecast and boosted its cash and equivalents as the company eliminates jobs and shuts call centers to cut as much as $2.5 billion in costs.

SoftBank has the second-highest credit risk among the companies in the iTraxx Japan index after Toshiba Corp., which is dealing with fallout from an accounting scandal. SoftBank surpassed the embattled Sharp Corp., whose bond risk plunged last week after signs the company may reach a rescue plan with Taiwan’s Foxconn Technology Group.

Sharp, which came to the brink of bankruptcy in 2012, has until Feb. 29 to decide between that offer and a rival bid from state-backed Innovation Network Corp. of Japan.

“It’s become clear that Sharp will probably not go bankrupt,” BNP Paribas’s Nakazora said. “SoftBank’s spread widening is beginning to divorce from its fundamentals.”

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