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Son reshaping Softbank seen in $20 billion loan

by Emi Urabe

Bloomberg

Softbank Corp.’s cost of refinancing debt from its purchase of Sprint Corp. will be less than half of what it paid seven years ago to acquire the Vodafone unit that launched its mobile phone operations.

Now Japan’s third-largest mobile carrier, Softbank expects to pay less than a 2 percent all-in rate on a ¥2 trillion syndicated facility, Softbank’s head of finance, Yoshimitsu Goto, said at an earnings announcement Tuesday.

The company paid an average of 5.14 percent for long-term debt in the fiscal year that ended in March 2011. The average rates for Asian borrowers of dollar loans are about 2.1 percent, while for U.S. borrowers it’s 2.9 percent.

“This isn’t the same Softbank as before. Our operating cash flow has become extremely rich,” the company’s billionaire founder, Masayoshi Son, said at the briefing. “We are receiving offers for financing that are far beyond our expectations.”

Reducing borrowing costs may help ease investor concerns that the debt burden from the acquisition will undermine Softbank’s finances. Both Moody’s Investors Service and Standard & Poor’s cut the company’s rating to noninvestment grade last month, citing the purchase.

Son said the ¥1 trillion record profit this year from Softbank’s domestic operations will be more than enough to cover expected losses at Sprint, while pooling purchases of handsets and network equipment will save $2 billion annually.

“The company’s financial standing is very different from the time” of the Vodafone unit purchase, said Toshihiro Uomoto, chief credit strategist at Nomura Securities Co. “Softbank is relying on its domestic cash flow to finance the expansion in the U.S.”

Softbank’s loan will include facilities with tenors between five years and seven years and will be arranged by Deutsche Bank AG, Mizuho Financial Group Inc., Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc., Goto said. The proceeds will be used to help pay for the Sprint acquisition and to refinance maturing debt, he said.

The company won a bidding war for Sprint last month when it raised its takeover bid and Dish Network Corp. abandoned a competing proposal. The entry into the U.S. market brings Son, Japan’s second-richest man according to the Bloomberg Billionaires Index, a step closer to his ambition of creating the world’s biggest mobile phone operator.

S&P cut its rating on the carrier by two levels to BB plus on July 8, while Moody’s reduced its ranking 10 days later by one to Ba1, the highest noninvestment grade at the risk assessors, according to data compiled by Bloomberg. Both companies ranked Softbank at three levels below investment level in 2006.

The ¥2 trillion purchase of Vodafone’s Japan unit in 2006 turned Softbank into a wireless carrier from an Internet and fixed-line provider and saddled it with ¥1.37 trillion in loans, equivalent to about $12 billion at the time.

Softbank’s outstanding liabilities now total ¥5.3 trillion, including a ¥250 billion term loan due Dec. 17 and ¥599 billion in facilities maturing in March 2015, according to data compiled by Bloomberg. The company’s weighted average fixed coupon has jumped to 5.8 percent from 3.52 percent three years ago, as average maturities more than doubled to 6.35 years.

Elsewhere in Japan’s credit markets, Banque Centrale de Tunisie sold ¥22.4 billion in 2.04 percent 10-year Samurai notes, according to data compiled by Bloomberg. Tunisia’s central bank last offered yen-denominated bonds for investors in Japan in December, issuing ¥25 billion in 1.19 percent debt due 2022. The securities are guaranteed by the Japan Bank for International Cooperation.

Samurai notes handed investors a 0.31 percent return last month, compared with a 0.22 percent gain for Japan’s corporate bonds and a 0.27 percent increase for the nation’s sovereign notes, according to Bank of America Merrill Lynch index data. Company debt worldwide climbed 0.82 percent.

The cost to insure Softbank’s debt against default closed 20 basis points lower last month at 190, down from a nine-month high of 325 on Oct. 15 after the announcement of the Sprint deal. The Markit iTraxx Japan index of credit-default swaps for 50 companies dropped 9.6 to 100.2 in July, according to data provider CMA. A basis point is 0.01 percentage point.

Net income at Softbank rose to ¥238.3 billion in the three months that ended on June 30 from ¥105.6 billion a year earlier, while operating profit almost doubled to ¥391 billion, the company said.

Softbank is also benefiting from record excess cash at domestic lenders after the central bank implemented unprecedented monetary stimulus as part of Prime Minister Shinzo Abe’s campaign to end deflation and spur economic growth.