Masayoshi Son, CEO of SoftBank, has been weighing up various options for chipmaker Arm after Nvidia walked away from buying the company.
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SoftBank offered a sharp rebuke on Wednesday to S&P Global Ratings, after the agency downgraded the Japanese giant’s credit rating.
“Over the past year, our strict defensive financial management has strengthened our financial position as never before,” SoftBank said. “It is extremely regrettable that our financial soundness was not properly assessed, and we will continue our dialogue with S&P.”
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S&P Global Ratings on Tuesday cut SoftBank’s rating to “BB” from “BB+” — where it deems a company’s credit rating as “speculative grade” or “junk.”
SoftBank shares closed down 2.3% in Tokyo on Wednesday.
SoftBank has turned itself into one of the world’s biggest tech investors over the last few years, putting billions of dollars into some of the biggest technology firms, including Uber, via its two Vision Funds. SoftBank mainly invests in companies that are not publicly listed.
Given the slump in technology shares amid globally rising interest rates, the Vision Fund segment posted a record 4.3 trillion Japanese yen ($3.1 billion) loss for the fiscal year ended Mar. 31, as business valuations plunged.
SoftBank has been cutting its stake in Chinese e-commerce Alibaba, which it has held for more than two decades and made the Japanese firm’s founder Masayoshi Son his fortune. The aim is to shore up SoftBank’s balance sheet, as the company’s management has pledged to play “defense” and be more prudent with its investment strategy.
S&P Global Ratings nevertheless argues that SoftBank’s Vision Funds have a high exposure to unlisted company shares, which are more volatile, as a result of selling Alibaba stock that are listed in both the U.S. and Hong Kong.
“Ongoing sales of shares in China-based Alibaba Group Holding Ltd … previously a major asset for the company, have eroded the proportion of listed assets in its portfolio,” S&P said. “Furthermore, the technology stocks in which the company has primarily invested have been depressed for a prolonged period.”
SoftBank argues that S&P is not taking into account its cash position, which rose to 5.1 trillion yen in the fiscal year ended Mar. 31, versus 2.3 trillion in the same period of 2022.
“It should be noted that S&P’s assessment of the proportion of listed assets excludes cash and deposits, etc. (JPY 5.1 trillion), which are the most liquid assets,” SoftBank said.
Arm listing in focus
SoftBank in 2016 acquired British chip designer Arm — which last month confidentially filed for a listing in the U.S.
Going public with Arm would be a “positive factor” for SoftBank, S&P noted, but it hasn’t included this development in its assessment because the timing and valuation of the company remain “uncertain.”
SoftBank said it has “strongly urged S&P to consider an upgrade once the proposed initial public offering of Arm is completed.”
S&P also noted that SoftBank is aiming for “disciplined financial management even in a difficult operating environment,” which continues to “underpin the company’s creditworthiness.”
Ultimately, the negative factors outweighed the positives, the ratings agency said.
“We therefore downgraded the company. The volatility of its investment portfolio and rising asset risk drive the negatives for the group. Meanwhile, financial management capability; a high level of cash; and holdings of shares in Arm, which could be listed, are positives.”