SoftBank Group Corp. lashed out at Moody’s Corp. after its debt was downgraded by two notches, accusing the ratings company of “bias” and “creating substantial misunderstanding” days after the investment group announced a $41 billion asset sale program intended to shore up confidence.
The Moody’s downgrade — lowering SoftBank’s corporate family rating and senior unsecured rating to Ba3 from Ba1 — pushes the company deeper into junk territory. It also comes at a critical time for founder Masayoshi Son, who this week set in motion his biggest play yet to silence critics and shore up his company’s crumbling shares and bonds.
“Such a downgrade, which deviates substantially from Moody’s stated rating criteria, will cause substantial misunderstanding among investors who rely on ratings in making investment decisions,” SoftBank said in a statement, which also asked Moody’s to withdraw the rating.
While SoftBank had 1.7 trillion yen ($15.3 billion) of cash and equivalents on hand at the end of December, it also has a huge debt load: the firm faces 1.68 trillion yen of bonds and loans coming due over the next two fiscal years and a total of about 3.6 trillion over the following four-year period.
The company, which also operates the $100 billion Vision Fund, is vulnerable to economic shocks given that debt, and its ties to unprofitable startups from WeWork to Oyo Hotels. Many of the Vision Fund’s biggest bets lie in what’s known as the sharing economy, which has been particularly hard-hit by the pandemic that’s causing millions of people to stay indoors. Travel spending has slumped as a result.
SoftBank is said to be targeting the sale of $14 billion of stock in the Chinese e-commerce leader Alibaba Group Holding Ltd., as well as slices of its domestic telecom arm and Sprint Corp., which is merging with T-Mobile US Inc. But SoftBank risked unloading some of its most prized assets at a discount given the downturn, Moody’s said in its statement.
“Asset sales will be challenging in the current financial market downturn, with valuations falling and a flight to quality,” said Motoki Yanase, a Moody’s senior credit officer in Tokyo.
“SoftBank’s decision to withdraw its corporate and foreign currency bond ratings by Moody’s probably wouldn’t save the company from higher new borrowing and refinancing costs,” said Anthea Lai, analyst, Bloomberg Intelligence
The scale of the endeavor unveiled by SoftBank on Monday surprised investors. Despite several days of gains, however, the stock remains down about 30% from its 2020 peak, underscoring persistent concerns that tumbling technology valuations will damage Son’s company. S&P Global Ratings said this week the asset sales could ease downward pressure on SoftBank’s credit quality.
The rout triggered by the coronavirus has spread to credit markets and sparked a surge in the cost of insuring debt against default — including that of SoftBank, whose credit-default swaps are near their highest level in about a decade. Apollo Global Management, the alternative asset management house co-founded by Leon Black, has placed a short bet against bonds issued by SoftBank because of its tech exposure, according to the Financial Times.