"We’ll Pay 4.75% a Year" SoftBank Group Corp. Issues Japan’s Largest-Ever Corporate Bond

【Financial News Tokyo = Correspondent Hye-jin Seo】SoftBank Group Corp. has finalized the interest rate on 1 trillion yen (approximately 865 billion won) in corporate bonds for individual investors at 4.75% per year. This is the highest rate offered on the company’s regular corporate bonds in 17 years. Although the company is attracting individual funds with a high interest rate, a key risk is that its ability to repay the bonds depends on the value of AI-related assets such as OpenAI and Arm Holdings.
SoftBank Group Corp. set the terms on the 4th for the issuance of seven-year corporate bonds for individual investors. Subscriptions will run from the 7th through the 16th, with payment due on the 17th. The initially indicated target rate was 4.3% to 4.9% per year.
Including bonds allocated to institutional investors, the total issuance is the largest ever by a Japanese company. It matches the 1 trillion yen (approximately 865 billion won) corporate bond issued by NTT Finance in 2020.
The issuance rate was set based on the trading yields of existing SoftBank Group Corp. bonds. As of the 24th of last month, when SoftBank Group Corp. announced its issuance plan, the trading yield on a seven-year bond maturing in December 2032—similar in maturity to the new bond—was below 4.4% per year. The company is seeking to secure demand from individual investors by offering a higher rate than on existing bonds traded by institutional investors.
Ordinary companies repay corporate bond principal and interest with cash generated from operations. As an investment company, SoftBank Group Corp. relies mainly on selling its holdings and receiving dividends from subsidiaries. This means its debt-repayment capacity declines when the value of its investments falls.
SoftBank Group Corp.’s net asset value (NAV)—the value of its holdings minus net interest-bearing debt—stood at 58.3 trillion yen (approximately 504.3 trillion won) as of the 5th of last month. OpenAI and British semiconductor design company Arm Holdings accounted for more than 70% of that total.
The NAV rose by approximately 80% over the three months through the end of June, driven by a rise in Arm Holdings’ share price. Arm Holdings’ stock, however, has recently entered a correction phase. As a privately held company, OpenAI’s holdings cannot be converted into cash immediately. In other words, even if their valuation rises, the funds available to repay the corporate bonds do not increase by the same amount.
To maintain financial soundness, SoftBank Group Corp. manages its loan-to-value ratio (LTV)—net debt relative to the value of its holdings—below 25%. The LTV stood at 13% as of the end of June. The company has also secured enough cash to repay bonds maturing over the next two years.
Credit rating agencies have offered differing assessments. Japan Credit Rating Agency (JCR) assigned the new corporate bonds an 'A' rating. By contrast, S&P Global Ratings gave SoftBank Group Corp. an issuer credit rating of speculative-grade 'BB+'. That is the same level as Tokyo Electric Power Company Holdings and Mitsubishi Motors.
According to S&P, the cumulative default rate for companies rated BB is 5.59% over five years and 10.10% over 10 years. The securities industry expects demand from individual investors seeking high-yield corporate bonds to be strong. Analysts, however, say the 4.75% annual rate reflects the concentration of assets in AI-related holdings and the resulting risk of price volatility.
[email protected] Hye-jin Seo Reporter