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By Phred Dvorak
This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (March 26, 2020).
SoftBank Group Corp. dropped Moody's Investors Service after the credit-ratings firm criticized the Japanese tech giant's massive share-and-debt buyback plan and downgraded its ratings by two notches.
Moody's questioned the "unexpected size and apparent urgency" of SoftBank's plan, which proposes up to $41 billion in asset sales to fund repurchases of stocks and bonds.
SoftBank said Wednesday that there was no rationale for such a large downgrade and that the action "will cause substantial misunderstanding among investors."
SoftBank's rating was already considered noninvestment grade, or junk, before Wednesday's downgrade. Moody's cut, to Ba3 from Ba1, won't force any bond redemptions or affect its loans, a SoftBank spokesperson said.
The tit-for-tat highlights the conflict of interest underlying credit ratings, since companies pay to be rated and can dump rating firms that don't give them scores they like. It also suggests how high the stakes are for SoftBank, which is pulling out the stops to raise its share price, which had halved since February, and bolster its balance sheet, weighed down by $70 billion in stand-alone debt.
SoftBank, best known for the aggressive bets it made through its $100 billion Vision Fund, has also lost the confidence of investors following the multibillion-dollar bailout of one of its biggest investments, the parent of office-share company WeWork. SoftBank has halted fundraising for a successor to the Vision Fund, substantially slowed the pace of its investments and is selling up to a fifth of its of assets -- chiefly a stake in Chinese e-commerce company Alibaba Group Holding Ltd. that is currently worth more than $120 billion -- to fund the share and debt buybacks.
SoftBank's aggressive buyback plan has been cheered by many investors. The group's share price has shot up more than 50% since the buyback announcement on Monday, and the price of a credit default swap, a financial instrument that offers protection against potential bankruptcy, has fallen more than 20%.
S&P Global Inc. on Tuesday cautiously praised the plan, saying it could "ease the downward pressure on its credit quality" and might show SoftBank was paying more attention to its financial soundness, although it warned the plan may be hard to execute during the current market turmoil.
In the statement explaining its downgrade, Moody's also pointed out that SoftBank might not be able to sell assets during the market downturn. It said that trying to do so could mean selling at a discount and damaging the value of its remaining holdings. Those investment holdings underpin SoftBank's big pile of corporate bonds as well as a plethora of loans and credit facilities.
Moody's also noted concerns about a deterioration of the credit quality of other companies SoftBank invests in, possible problems in turning around WeWork and an increase in a variety of liabilities, including margin loans.
SoftBank said that Moody's view of the markets was too pessimistic and that the buyback plan would end up improving credit quality, since it called for using up to $23 billion to redeem debt and beef up cash reserves, in addition to the $18 billion for share repurchases.
Write to Phred Dvorak at email@example.com
(END) Dow Jones Newswires
March 26, 2020 02:47 ET (06:47 GMT)
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