SoftBank looks as maverick in financing as in deal making. Fresh from a leftfield $32 billion bid for British chip designer ARM, the Japanese tech giant is considering selling $10 billion of hybrid bonds. That could build on SoftBank's cachet with retail investors, and help keep headline debt levels in check.
Corporate hybrid bonds are long-dated or perpetual, rank behind standard debt in the queue for repayment, and coupon payments can be put off in hard times, much like a dividend on a share.
That means credit agencies can be willing to treat them wholly or partly as equity, and so they have proved popular with indebted European blue chips, like BHP Billiton, Telefonica and Total, who want to safeguard their ratings. Trading house Mitsubishi Corp introduced them to Japan last year.
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The mooted issuance is huge, outstripping even French utility EDF's $8.3 billion blockbuster deal in 2013. Japanese households, however, are likely to buy a large chunk of these securities, and SoftBank has form in tapping them for funding. For example, it has previously sold bonds named after the Fukuoka SoftBank Hawks, a baseball team it owns. Coupons of around three per cent, according to the Nikkei newspaper, would look attractive to buyers when Japanese corporate bonds yield barely 0.1 per cent.
The difference means this is comparatively expensive debt funding. It is also odd that SoftBank is turning to instruments which are so explicitly designed with rating agencies in mind given that boss Masayoshi Son says he already views SoftBank as investment-grade.
To complicate matters further, Moody's takes a more binary approach to hybrids from junk issuers than it does to those from investment-grade companies. It will only treat them either entirely as bonds or entirely as shares. If it decides that SoftBank's paper is indeed all-debt, a downgrade would be more likely, not less.
