Softbank buyback plan raises doubts about its ‘financial soundness’
Credit-rating firm S&P Global Ratings has questioned Softbank’s financial rigour as it pursues a huge share buyback programme.
The buyback plan raises doubts about the conglomerate’s intention to adhere to “financial soundness and creditworthiness,” S&P said. Softbank is looking to raise up to $41bn via asset sales.
The plan has already come under fire from Moody’s Investors Service, which slashed Softbank’s junk rating and questioned the viability of the programme.
Buybacks have helped the firm’s shares rise 92 per cent after hitting lows in March. This is despite Softbank reporting a record annual loss in April, in part due to the pandemic but also because of a series of bad bets.
The Japanese company said it expected to lose $16.7bn on tech startups it had invested through its $100bn Vision Fund.
Its bet on Wework, the real estate firm which shelved IPO plans, also backfired after its valuation dropped over the last year.
Earlier this week, the firm said it would cut 15 per cent of jobs at the investment arm which manages the Vision Fund.
The cuts could begin as early as this week, according to reports by Bloomberg and the Financial Times, and will mark the first major round of layoffs since Softbank Investment Associates was established in 2016 to manage the fund.
S&P revised its outlook for Softbank to negative in March but held back on downgrading the current junk BB+ rating. The credit-rating firm today said that the firm’s loan-to-value ratio had likely grown 30-35 per cent, just short of the 40 per cent that would trigger a downgrade.
S&P said that the value of Softbank’s portfolio is in a few big assets, and while the credit impact of the Vision Fund will be limited, it underscores the “low quality of some assets” and “strong risk appetite”.