SoftBank's Credit Risk Climbs Amid Aggressive AI Push
Investors are growing increasingly wary of SoftBank Group Corp.'s financial strategy, sending a key market indicator of its credit risk to its highest point since April. The company's aggressive, debt-funded expansion into artificial intelligence projects is raising eyebrows at a time of fierce global competition in the tech sector.
Market Signals and the Fundraising Drive
According to data compiled by Bloomberg, the cost of insuring SoftBank's debt against default spiked significantly. The five-year credit-default swaps (CDS) for the Japanese conglomerate climbed to approximately 302 basis points on Thursday. This marked a sharp increase from around 280 basis points just the day before.
This surge in credit risk perception coincides with an intense fundraising campaign by SoftBank. On Wednesday, the firm announced terms for a massive ¥500 billion ($3.3 billion) retail bond sale featuring a 3.98% coupon. A part of the capital raised from this issuance is earmarked to repay a bridge loan that was linked to its strategic investment in OpenAI.
The market's caution is also visible in SoftBank's existing international bonds. Spreads on both its US dollar and euro-denominated bonds, which were issued back in July, have also widened, reflecting heightened investor apprehension.
A Tale of Two Strategies: SoftBank vs. Rakuten
In a stark contrast, another major Japanese tech player, Rakuten Group Inc., is witnessing a different market reaction. While SoftBank's risk profile deteriorates, Rakuten's five-year CDS spreads have modestly narrowed in recent weeks. Data shows these contracts have shrunk to about 200 basis points from a high of around 250 basis points in August.
This divergence highlights the market's response to two distinct corporate strategies. Rakuten has been actively working to reduce its substantial debt load to improve its overall credit standing, a move that appears to be earning investor confidence.
Expert Insight on the Market Sentiment
Taketoshi Tsuchiya, the chief executive officer of Fujiwara Capital Co., provided analysis on the factors influencing SoftBank's rising CDS. He suggested the market is pricing in several concerns, including:
- The recent decline in the value of AI-related stocks.
- SoftBank's persistent bond issuance, adding to its debt.
- Specific "concerns" over the company's concentrated and substantial investment in OpenAI.
By contrast, Tsuchiya pointed to Rakuten's solid performance in its financial business units and its demonstrated ability to issue subordinated bonds within its domestic market as key factors providing "reassurance" to investors. This fundamental strength is helping Rakuten improve its credit profile even as its rival faces headwinds.
As SoftBank continues to unwind other positions to fund its ambitious projects—from the massive Stargate data centers being developed with OpenAI and Oracle Corp. to new robot manufacturing sites in the United States—the market will be watching closely to see if its high-stakes bets on AI will eventually pay off and ease the growing concerns over its debt.
