SoftBank Group Corp.#s Hybrid Issuance Rated #B+# And Assessed As Having Intermediate Equity Content

Stocks and Financial Services Press Releases Thursday July 6, 2017 16:55
TOKYO--6 Jul--S&P Global Ratings

TOKYO (S&P Global Ratings) July 6, 2017--S&P Global Ratings today said that it has assigned its 'B+' issue rating to proposed undated subordinated resettable notes to be issued by SoftBank Group Corp. (SoftBank; BB+/Stable/--). We arrive at our 'B+' issue rating on the proposed securities by notching down from our 'BB+' long-term corporate credit rating on SoftBank. The three-notch differential reflects our notching methodology, whereby we deduct two notches for subordination of the securities and one additional notch for the issuer's option to defer interest payments.

We classify the proposed securities as having intermediate equity content until 2023 for the NC6 note, which is callable after six years, and until 2027 for the NC10 note, which is callable after 10 years. The hybrid securities' characteristics--the option to defer interest payments at the company's discretion, sufficient permanence until the date we regard as the effective redemption date, and subordination in liquidation or bankruptcy proceedings--meet our standards for intermediate equity content of hybrid capital instruments.

The completion and size of the issue will be subject to market conditions. Proceeds will be applied to general corporate purposes including investment in SoftBank Vision Fund. We classify the proposed hybrid securities as having intermediate equity content, and we regard half of the issue amount as debt and the other half as equity. As a result, we consider major financial ratios for the company will remain commensurate with our current rating.

KEY FACTORS IN OUR ASSESSMENT OF THE PROPOSED INSTRUMENTS' DEFERABILITYSoftBank retains the option to defer interest payments on the proposed securities. Any outstanding deferred interest is cumulative and will be settled in cash if SoftBank pays a dividend on its stocks or interest on debt that is pari passu with the securities. However, this condition will not affect our equity content categorization of the securities under our criteria. The proposed securities do not have a look-back period, during which the company is prohibited from deferring interest payments on the securities if it pays a dividend on its stocks or interest on debt that is pari passu with the securities.

KEY FACTORS IN OUR ASSESSMENT OF THE PROPOSED INSTRUMENTS' PERMANENCE These hybrid securities are undated. However, the NC6 note will become callable in six years and the NC10 note will become callable in 10 years. In addition, the interest rate applicable to the hybrid securities will increase 25 basis points (bps) in 2023 (year six) for the NC6 and in 2027 (year 10) for the NC10. The interest rate will increase an additional 75 bps in 2038 (year 21) for NC6 and in 2042 (year 25) for NC10. Because we consider the cumulative 100-bp step-up for the securities as material under our criteria, we believe the step-up provides an incentive for SoftBank to call the securities on the respective second step-up dates. Consequently, we will consider the second step-up dates as the effective maturity dates because the issuer has not included intent-based replacement provisions that meet our criteria. We will reclassify the equity content as minimal when the remaining period to effective maturity for these hybrid securities shortens to less than 15 years--in six years for NC6 and in 10 years for NC10--as long as the long-term corporate credit rating on SoftBank is in the 'BB' rating category.

We believe SoftBank adequately positions its hybrid securities as a form of loss-absorbing capital over the long term. The company has expressed its intent to replace the securities with hybrid securities with equivalent or higher equity content if it redeems the hybrid securities before they mature unless certain conditions hold true, including that redemption does not result in deterioration of the company's creditworthiness. In addition, SoftBank has a record of controlling its financial standing under stress, in our view, despite its very aggressive growth and financial strategies. For example, the company has sold material equity holdings to pursue growth opportunities or to weather financial difficulties. Considering these factors, we currently believe the company's financial policy and its intent to refinance meet our assessment of intermediate equity content. We assess the hybrid securities as having intermediate equity content up to 2023 (year six) for NC6 and up to 2027 (year 10) for NC10 as long as the company sustains its financial policy and its intention to refinance and our long-term corporate credit rating remains in the 'BB' rating category. We consider that a repurchase or call of these hybrid securities or any other hybrid securities, irrespective of the size, will cause us to question the company's intention to maintain or replace such hybrid securities and may negatively affect our assessment of the equity

content of such securities.
KEY FACTORS IN OUR ASSESSMENT OF THE PROPOSED INSTRUMENTS' SUBORDINATIONThe proposed securities (and interest) would constitute unsecured and subordinated obligations of SoftBank.

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