SoftBank could benefit as BOJ expands corporate debt buying

By Hideyuki Sano

SoftBank Group could finally become a beneficiary of the Bank of Japan's corporate bond buying - if the central bank drops a long-held wariness towards Masayoshi Son's heavily indebted tech firm, analysts said.

The Bank of Japan this week increased by three-fold the maximum amount of corporate bonds and commercial paper it buys to a combined 20 trillion yen ($188 billion), a move designed to ease strains on corporate financing and provide a cushion for an economy battered by the coronavirus.

The BOJ does not disclose what corporate debt it buys, but market sources with knowledge of the matter say it has so far avoided SoftBank bonds, presumably to limit its exposure to Japan's most indebted firm.

"The BOJ could buy SoftBank Group bonds, but it would need to give consideration to managing credit risk," said one credit analyst, who declined to be identified because he wasn't allowed to speak to the media about individual companies.

"It may consider putting a limit on how much it can buy."

Analysts say the tide may be turning in favour of Softbank for a few reasons.

The BOJ has a limited amount of company bonds it can buy and Softbank is a big player in the market, with 17.2 trillion yen ($161.24 billion) of interest-bearing debt. Japan's corporate debt market is relatively small at 93 trillion yen.

It is also an outlier in a country where companies have paid down debt and hoarded cash for years. Japanese firms traditionally rely on bank loans, rather than bonds, for much of their finance.

The BOJ has said it will buy corporate bonds with up to five years left to maturity, compared with the current limit of three years. Its next corporate bond purchase is on May 8.

SoftBank has about 2.8 trillion yen of bonds due to mature within five years. That's the single biggest chunk of five-year debt in the Japanese market, and about four times as large as the outstanding debt of the second-biggest issuer, Tepco Power Grid, according to SMBC Nikko Securities.

RATING HURDLE?

One hurdle for SoftBank may be in its debt rating - the BOJ has generally accepted most bonds with investment-grade credit ratings, market players say.

SoftBank is rated at BB+ by Standard & Poor's and at Ba3 by Moody's, both below investment grade. The central bank's official guideline is to buy investment-grade debt.

However, SoftBank is still rated as investment grade by two domestic agencies, JCR and R&I, giving the BOJ some leeway.

The BOJ had long sidestepped utility TEPCO Power Grid too. Its parent company, Tokyo Electric Power Co, was effectively shut out of the market for years after the Fukushima nuclear accident in 2011.

But the BOJ started buying TEPCO Power Grid debt last year, a move some market players say reflects the central bank's limited investment choices. Like Softbank, the utility has an investment grade rating from just the two Japanese firms.

The BOJ also buys debt from SoftBank's telecom unit SoftBank Corp , whose only investment-grade ratings are also from domestic raters.

While some investors have long been concerned about SoftBank's debt levels, that should change with its proposed asset sale programme as it frees up cash to pay down debt, said equity analyst Kirk Boodry of Redex Holdings, who publishes on the Smartkarma platform.

"It is certainly better to be in rather than out," he said, referring to the BOJ's bond-buying. ($1 = 106.55 yen)

(Additional reporting by Sam Nussay and Takashi Umekawa; Editing by Jacqueline Wong, David Dolan and Neil Fullick)