SoftBank pays record 8.5% on part of US$3.6 billion bond sale

[TOKYO] SoftBank agreed to pay its highest interest rate on US dollar notes as part of a US$3.6 billion fundraising, underscoring concerns about the Japanese conglomerate’s large-scale investments in artificial intelligence.

The company said it sold US$1.5 billion and 1.8 billion euros (S$2.7 billion) of bonds on Wednesday (Apr 15), with part of the proceeds earmarked for repaying bridge loans tied to its investments in US technology company OpenAI.

The 8.5 per cent coupon on the 10-year US dollar tranche in the deal is a record for the company in the currency, surpassing a previous high in October, data compiled by Bloomberg showed. 

SoftBank has charged ahead with substantial AI investments over the last year, including an additional US$30 billion stake in OpenAI that the Japanese company is funding with debt.

Its weaker debt metrics are being increasingly reflected in bond markets. Interest rates on Wednesday’s debt sale are more in line with what companies holding deeper junk ratings pay, Bloomberg indices show.  

The conglomerate, founded and led by billionaire Masayoshi Son, said in March it signed a loan of US$40 billion – that will be repaid partly through the sale of assets – with a consortium of banks.

Its significant investment in AI, coupled with a rising debt load to fund those bets, has unsettled some market watchers.

S&P Global Ratings lowered its ratings outlook in March to negative from stable, citing the danger that the Japanese company’s investments in OpenAI might hurt its liquidity, as well as the credit quality of its assets.

While the company’s “BB+” credit score from S&P is just one rank below the investment grade, its debt that priced on Wednesday carried yields that were more similar to those of companies with single B ratings.

SEE ALSO

SoftBank in talks to invest up to US$30 billion more in OpenAI, source says

SoftBank seeks record loan of up to US$40 billion for OpenAI stake

SoftBank secures US$40 billion loan to boost OpenAI investments

SoftBank lenders ask more banks to join US$40 billion OpenAI loan

More

The average yield on US junk notes with single “B” level scores is 7.1 per cent, compared with around 5.8 per cent for those in the BB zone, Bloomberg indices show.    

SoftBank’s deal included US dollar debt maturing in 3.5 years, paying a yield of 7.625 per cent and four-year euro-denominated notes at 6.375 per cent, Bloomberg-compiled data showed. 

Still, the company’s new US dollar bonds were being offered at above par in Asian trading hours on Thursday in secondary markets, said credit traders.

It is a positive sign of investor appetite. SoftBank plans to use the funds raised this week to also redeem foreign-currency bonds, it said.      

CreditSights analysts wrote in a note this week: “SoftBank’s balance sheet has become more stretched.” Still, the company’s “underlying asset value remains strong in absolute terms”, they added, while maintaining an outperform recommendation on the company’s debt. 

SoftBank’s share price rose 5.1 per cent on Thursday, extending a rally this week – as global risk assets rallied on hopes of an end to the Iran conflict.     

Kazuma Ogino, senior credit analyst at Nomura Securities, said that the SoftBank deal may also offer a gauge of investor appetite for Japanese issuers in the offshore debt, which hit a record high last fiscal year.

“If a large deal such as this is absorbed early in the current fiscal year, it could provide a tailwind for Japanese firms’ offshore bond issuance,” he said. BLOOMBERG