SoftBank’s ARM Deal Credit-Positive in Longer Term, Nomura Says

  • ‘Big positive’ SoftBank overhauling its investments: Nomura
  • Son betting on the Internet of Things with ARM purchase

SoftBank Group Corp.’s $32 billion bid for ARM Holdings Plc will be positive for the Japanese company’s credit in the longer term as it will get technology that may help it lead in the so-called Internet of Things, according to Nomura Holdings Inc.

It’s a “big positive” that SoftBank’s Masayoshi Son is acquiring ARM, which promises synergies, while he sheds stakes in Alibaba Group Holding Ltd. and game makers such as Supercell Oy, with which it has fewer synergies, Toshihiro Uomoto, Nomura’s chief credit strategist in Tokyo, wrote in a report dated Monday. The purchase’s effect on SoftBank’s finances will probably be limited, he said.

Son is betting that the Internet of Things -- smart appliances, gadgets and office gear talking to each other and functioning free of much human intervention -- will be powered by microchips created by ARM. Markets are skeptical about the investment, with SoftBank’s share price down 10 percent since the announcement and its dollar bond yields jumping last week. The outlook for SoftBank’s A- debt score was cut to negative on July 19 by Japan Credit Rating Agency Ltd., which said the deal may worsen the company’s finances.

The acquisition will probably push up SoftBank’s net debt to earnings before interest, taxes, depreciation and amortization to 4.1 times from 3.8 times, Nomura’s Uomoto wrote. If a downgrade in the firm’s credit rating forces institutional investors to sell its bonds, that may be a buying opportunity, he said.

“In the medium- to long-term, this acquisition may help lift the company to heights that it couldn’t reach before with its business portfolio up to now,” he wrote.

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