Why the 35-year-old SoftBank company again spoils its reputation because of the “crazy” deal with ARM Holdings

The credit rating of one of the largest telecommunications companies in Japan, SoftBank Group, has been shaken. It began to decline after a deal with chip manufacturer ARM Holdings. Such is the logic of the international rating agency Moody's. It is going to revise the credit rating of the company, which is still kept at Ba1 .

On Monday, September 5, the procedure for buying ARM Holdings for $ 32 billion was completed. The latter is the largest UK manufacturer of chips for mobile devices. As a result of the transaction, SoftBank Group’s debt obligations will increase. At the end of the 2015-2016 fiscal year, they amounted to $ 115 billion.
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The company's debt is 5 times higher than its adjusted profit received in the past financial year. If the debt exceeds this figure by 5.5 times or more, Moody's rating agency will have every reason to lower the SoftBank credit rating.

“This acquisition of [ARM Holdings] and the additional debt burden it entailed may lead SoftBank to go over the threshold of 5.5-fold excess of [debt over profit] by the end of the current fiscal year,” noted in a conversation with Bloomberg An analyst at the Tokyo branch of Moody's Matoka Yanase (Motoki Yanase).


ARM Holdings revenue (in pounds), Financial Times forecast

However, SoftBank is not going to calmly watch as debt eats up its reputation. This month, the company will issue bonds worth $ 3.4 billion. True, by the end of 2018, it will have to redeem bonds for a total of $ 16.5 billion. In addition, SoftBank expects to sell part of its debt to investment funds, which is likely to affect the situation to a greater extent.

A stake of $ 7.9 billion was also put up for sale. Jack Ma is going to buy back part of the shares in the amount of $ 2 billion.


Masayoshi San and Jack Ma

The approach of SoftBank founder Masayoshi Sana to buying companies may be surprising if you do not know the global plans of the Japanese entrepreneur and his personal qualities. Experts called most of his transactions insane. Among them, the huge investment in Yahoo! and Alibaba Group, which seemed risky, but brought the company tens of billions. Of course, there were loud failures, especially noticeable in the process of the collapse of the dot-coms.

For the past six years, San has been very concerned about the future of his business and the state of the planet in general. San notes that he is going to work in various industries: among them, for example, the release of robots, the Internet of Things, and artificial intelligence — there are versions that the purchase of ARM is related to research in this area.

The Japanese holding SoftBank includes more than 600 companies operating in many industries, starting with telecommunications and ending with the creation of robots.