SoftBank Group Falls Most Since 2012 After S&P Cuts Outlook

(Bloomberg) -- SoftBank Group Corp. shares fell the most since 2012 after S&P Global Ratings cut its outlook to negative, as investors grow increasingly skittish about the company’s prospects with global markets in tumult.

The credit-rating agency said the Japanese conglomerate’s plan to spend up to 500 billion yen ($4.7 billion) buying back shares amid plummeting markets raises questions about its commitment to sound financial practices. The company’s shares dropped as much as 12%, the most intraday since October 2012. The agency did affirm the company’s long-term issuer BB+ rating.

SoftBank said it would buy back as much as 7% of its shares last week, taking a step advocated by activist investor Elliott Management Corp. to boost stockholder value. But the move has done little to reassure investors, with the stock down more than 15% since the announcement.

“The buyback plan is likely to weigh on SoftBank Group’s credit quality because it strongly underscores its aggressive financial management,” S&P’s Hiroyuki Nishikawa and Makiko Yoshimura wrote in a research note. “Under normal circumstances, the current rating would likely tolerate the impact of a share buyback of this scale. But the buyback follows a plan announced in October 2019 to provide extensive financial support to U.S.-based investee WeWork Companies LLC. It also comes amid large falls in stock prices.”

SoftBank Group’s market value has tumbled to about 6.98 trillion yen, about the same as SoftBank Corp., the domestic telecom operation that sold stock to the public last year. SoftBank Group still owns about two-thirds of the unit.

“The company may struggle to maintain a level of financial soundness that is commensurate with the rating if stock prices remain volatile and result in a sharp drop in the value of its investment assets,” the S&P analysts wrote.

Just after the S&P move, news emerged that SoftBank has told shareholders of WeWork that it could withdraw from an agreement to buy $3 billion of stock in the embattled co-working business, casting doubt on a deal that had been set to close in about two weeks.

In a message to stockholders reviewed by Bloomberg News, the Japanese conglomerate cited numerous government inquiries into WeWork, including those from U.S. attorneys, the Securities and Exchange Commission, attorneys general in California and New York and the Manhattan district attorney.

The WeWork stock purchase was part of a rescue financing from SoftBank after WeWork’s failed initial public offering last year. SoftBank already invested $1.5 billion as part of the bailout in October and is looking to arrange billions of dollars more in debt.

S&P’s BB+ rating on SoftBank put it at the highest non-investment grade, same as Moody’s Ba1. Japan Credit Rating Agency ranks it at A-, or four levels above junk. Both Moody’s and JCR have a stable outlook on the company.

SoftBank had 19.25 trillion yen of interest-bearing debt as of Dec. 31, a 23% increase since the start of the fiscal year in April. Sprint Corp.’s imminent merger with T-Mobile will lighten the load by about 4.9 trillion yen. The company had 3.8 trillion yen of cash and equivalents, while more than 2.6 trillion yen of bonds are coming due in the next three years.

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