The Zhitong Finance App learned that the rating agency Standard & Poor's downgraded the long-term credit rating of Japan's SoftBank Group (SFTBY.US) from “BB+” to “BB” (garbage grade) on the grounds that the Japanese technology group is more susceptible to fluctuations in the valuation of private startups and exposure to other external risk factors.

S&P said that SoftBank's credit risk is rising because it is selling the assets of listed companies such as Alibaba (BABA.US) and increasing investment in private startups with more volatile valuations. The agency wrote in a report: “The increase in asset risk in SoftBank's portfolio has exceeded our expectations. The group's liquidity and credibility are likely to continue to be drastically eroded over the next year or so.”

Affected by this news, as of press release, SoftBank's stock price had dropped more than 2%, and its credit default swap (the cost of insuring SoftBank debt) recorded the biggest increase in about a month.

SoftBank criticized S&P's decision to downgrade its long-term credit rating and argued that the ratings agency failed to accurately analyze its situation. SoftBank said that selling assets such as Alibaba in exchange for cash is clearly more beneficial to the stability of its balance sheet.

In a statement, SoftBank said, “Over the past year, our strict defensive financial management has strengthened our financial position as never before. It is very regrettable that our financial soundness has not been properly assessed. We will continue our conversation with S&P.”

After the rating was downgraded, SoftBank's chief financial officer Yoshimitsu Goto said that the rating downgrade would not affect SoftBank's borrowing costs or the way it manages its balance sheet. He also said that since the group has sufficient cash reserves of more than 5 trillion yen, there is no need to issue new bonds for the time being.

Yoshimitsu Goto said that SoftBank still needs to refinance the approximately 350 billion yen worth of bonds sold to retail investors, which will expire in the third quarter of next year. He said that only time will tell the yield trend at that time, but the coupon interest rate of the bonds sold by SoftBank to retail investors is linked to the ratings of Japanese credit rating agencies and has nothing to do with S&P's ratings. If SoftBank sees a decline in demand for its bonds, “we can adjust the timing of any new bond issuance at any time,” he said.

It's worth mentioning that this isn't the first time SoftBank has fought back against rating agencies. Softbank clashed with Moody's Investors Services for several years, and the group has not provided Moody's with information since March 2020. Yoshimitsu Goto said, “We have always respected S&P. It's terrible that they came to such an unreasonable conclusion.”