SoftBank Plunges 17% In Steepest Drop Since IPO In 1994

SoftBank Group Corp. plunged 17% Thursday on top of steep declines earlier this month, as investors grow concerned about the heavily indebted Japanese conglomerate with markets in tumult.

Shares dropped the most since founder Masayoshi Son first listed his company in 1994. They have tumbled about 50% in just the past month, erasing about $50 billion in market value.

The Japanese billionaire is fighting to reassure investors about the stability of his empire amid the coronavirus pandemic. That is pulling down equity prices and prompting the worst sell-off in credit markets since the 2008 financial crisis. It has sparked a dramatic surge in the cost of insuring against defaults around the world, including SoftBank’s.

”You can’t deny the possibility that massive paper losses at SoftBank could lead to its liabilities exceeding assets,” said Makoto Kikuchi, chief investment officer at Myojo Asset Management Co. in Tokyo. “Then the company will not only be heavily in debt, it would also find further borrowing more difficult.”

Institutional investors are concerned that the value of SoftBank’s investments might have fallen by 30%, judging from the plunge in the U.S. Nasdaq index, Kikuchi said.

S&P Global Ratings cut its outlook on the company to negative late Tuesday, citing the broad market declines and the conglomerate’s aggressive plans for a share buyback. SoftBank shares plummeted 11% in Tokyo on Wednesday, which had been the largest decline since 2012.

SoftBank has said there is no change in its policy of having enough liquidity on hand to cover two years’ worth of bond repayments and focusing on its loan-to-value ratio, a key metric looking at its net interest-bearing debt against the value of investments. SoftBank added that it is curbing new investments to match the current environment and acknowledged that fundraising costs are likely to rise going forward.

Last month, activist investor Elliott Management Corp. disclosed a stake in SoftBank, arguing its shares were undervalued and that Son should buy back as much as $20 billion. SoftBank said on March 13 it would spend up to 500 billion yen ($4.6 billion) buying shares.

S&P responded by cutting its outlook for SoftBank, saying the decision “strongly underscores its aggressive financial management.” SoftBank shares, which typically rally with a buyback, have dropped about 30% since the announcement.

Son has argued that he has more than enough assets to cover the debts. That includes the group’s stakes in Alibaba Group Holding Ltd., Arm Holdings Plc and SoftBank Corp., its domestic telecom arm.

SoftBank Group is taking steps to preserve cash. This week, the company told shareholders of WeWork that it could withdraw from an agreement to buy $3 billion of stock in the embattled co-working business.

Son has said that he wants to keep SoftBank’s loan-to-value ratio below 25%. S&P said that the gauge would likely be about 30%-35% in the coming year or so.

“If its credit rating falls one notch, the megabanks will no longer be able to lend as they have before, making fundraising even more risky,” said Kikuchi. “In addition to SoftBank’s own financing problems, the startups it invested in will have a hard time borrowing too.”

Bloomberg