SoftBank’s CDS cost hike hit a two-year high as the value of its holdings plummeted

FILE PHOTO: The SoftBank Group Corp logo is displayed at the SoftBank World 2017 conference in Tokyo
FILE PHOTO: The SoftBank Group Corp logo is displayed at the SoftBank World 2017 conference in Tokyo, Japan July 20, 2017. REUTERS/Issei Kato

March 16, 2022

By Sam Nussey

TOKYO (Reuters) – The cost of insuring against a default on SoftBank Group Corp’s debt hit a two-year high on Wednesday and bond yields also rose as sharp falls in the value of its technology investments unsettled investors.

The high-profile companies in the tech investor’s portfolio fell in value as China’s crackdown on tech companies, the prospect of higher interest rates and a war in Ukraine were hurt. Among them, Alibaba Group Holding Ltd and Didi Global Inc are down 35% and 64%, respectively, year to date.

“Bond investors are generally more conservative than stock investors, but if they’re worried, stock investors should probably pay attention,” said Kirk Boodry, an analyst at Redex Research.

SoftBank’s 5-year credit default swaps rose about 25 basis points, data from IHS Markit showed. The yield on its unsecured Eurobonds maturing in 2025 closed at 6.767% on Tuesday, the highest in almost two years. At the end of last year it was around 3.1%.

SoftBank shares are trading at two-year lows and were mostly flat on Wednesday morning.

CEO Masayoshi Son said last month “we’re definitely going to sell a good chunk of the assets” as he moved to a plan to list the chip designer in the United States following the collapse of Arm’s sale.

SoftBank sold $1 billion worth of Coupang shares last week at a price per share that was 30% lower than a similar sale in September.

Some analysts have questioned SoftBank’s ability to sell its portfolio in troubled markets, as many investors are skeptical of loss-making companies that lack a clear path to profitability.

“The lack of profitability means there is no clear floor for stock prices,” LightStream Research’s Mio Kato wrote on Smartkarma, adding that the Japanese company could be at risk of margin calls.

“We are therefore unconvinced in their ability to monetize holdings in any meaningful way,” he wrote.

SoftBank did not immediately respond to a request for comment.

Clearing by investors with exposure to Russian and Chinese bonds may have contributed to SoftBank’s rising returns as the conglomerate is viewed as a riskier investment than other tech companies, said Justin Tang, head of Asia research at United First Partners.

Analysts are pointing to a possible deterioration in SoftBank’s loan-to-value ratio, which rose to 22% at the end of December from 19% three months earlier. SoftBank has committed to keeping the ratio below 25% in normal times, with a 35% threshold in unusual times.

“We believe the environment could be classified as crisis…allowing SBG to use the 35 percent threshold instead,” wrote Trung Nguyen, a senior credit analyst at Lucror Analytics, on Smartkarma.

In the early days of the pandemic, SoftBank’s share price plummeted below 4,000 yen as valuations plummeted, prompting a record buyback funded by asset sales. They were trading at 4,256 yen on Wednesday.

(Reporting by Sam Nussey; Editing by Muralikumar Anantharaman and Edwina Gibbs) SoftBank’s CDS cost hike hit a two-year high as the value of its holdings plummeted


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