Rating Action: Moody’s changes SoftBank Group’s outlook to stable; affirms Ba3 ratingsGlobal Credit Research – 08 Mar 2021Tokyo, March 08, 2021 — Moody’s Japan K.K. has affirmed the Ba3 corporate family rating (CFR) and senior unsecured rating of SoftBank Group Corp. (SBG), as well as its B2 subordinate rating.Moody’s has also changed the outlook to stable from negative.RATINGS RATIONALEThe change in the outlook to stable from negative reflects the progress of SBG’s asset monetization program since it was announced in March 2020. The company has completed a number of asset sales totaling JPY 5.6 trillion that have increased clarity on the value of the core components in its investment portfolio. Additionally, favorable stock market conditions have bolstered the value of its portfolio and facilitated the execution of its asset sales and investments.Compared with its initial plan of JPY 4.5 trillion, the company is currently above its asset sales target, although it is below target in applying those proceeds almost equally toward share repurchases and reducing its net debt.The affirmation of SBG’s Ba3 ratings reflects its good liquidity at the holding company level, which can cover scheduled debt maturities over the next two years, as well as its ownership of its highly valuable investment portfolio, including a 40% stake in SoftBank Corp. and a 25% stake in Alibaba Group Holding Limited (Alibaba, A1 stable).These strengths are balanced against the ongoing substantial changes in SBG’s credit profile as a result of its large investments and divestments, which could alter the value and quality of its investment portfolio, as well as its capital structure. The company’s interest coverage is low at below 1x, although it has significant liquid resources on which it can draw to supplement income. The ratings also consider SBG’s aggressive financial policy and associated governance concerns.While the company has maintained enough cash to cover two years of debt maturities, which is appropriate for its rating level, it has not materially increased its cash on hand (around JPY2 trillion) from its asset sales because it has reinvested much of the proceeds. Moody’s estimates that most of the reinvestment went into tradeable shares of listed US technology companies through SB Northstar LP.The stable outlook reflects Moody’s expectation that SBG’s portfolio value is not deteriorating but changing, with its market value-based leverage (MVL) expected to range between 23% and 29%, and that the company will maintain good liquidity with its substantial cash balance.Governance is a key rating consideration, with concerns that include (1) the scope and pace of changes on its balance sheet as strategies shift; (2) SBG’s strong appetite for investments, which could be funded by complex financial arrangements with limited transparency; and (3) its dependence on its CEO and founder Masayoshi Son when it comes to key investment decisions, which presents key-person risk. Mr. Son owns about 26.9% of SBG and coinvests in SBG’s investment vehicles, including SB Northstar. Mr. Son owns 33% of SB Northstar and SBG owns the remaining 67%.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSMoody’s will consider upgrading the ratings if SBG (1) resolves the above governance concerns; (2) establishes a track record of debt repayment — particularly secured debt — with asset sale proceeds; (3) adopts a simpler, more stable and transparent capital structure; and (4) sustains interest coverage above 1.5x and MVL around 20%. SBG’s CFR remains constrained by its investment approach and dominant leadership of its CEO.Moody’s will consider downgrading the ratings if the credit quality and transparency of SBG’s investee companies deteriorate, including a further decline in the company’s ownership of (1) its dividend-paying SoftBank Corp. subsidiary, without a commensurate increase in stable dividends from other sources; or (2) Alibaba, without an increase in other liquid assets. In addition, Moody’s will consider a downgrade if cash held at the holding company level diminishes, such that SBG’s cash on hand no longer covers two years of scheduled debt maturities; or if the company’s total debt increases or the proportion of secured debt rises. Downgrade pressure will also arise if material legal or other contingent obligations crystallize or governance concerns rise further.The principal methodology used in these ratings was Investment Holding Companies and Conglomerates (Japanese) published in August 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1135855. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Headquartered in Tokyo, SoftBank Group Corp. is a Japanese holding company with subsidiaries in various businesses, including telecommunications, internet and other technology businesses.The following ratings are affected by today’s rating action:..Issuer: SoftBank Group Corp…..LT Corporate Family Rating, Affirmed at Ba3….Senior Unsecured Regular Bond/Debenture (Foreign Currency), Affirmed at Ba3….Subordinate Regular Bond/Debenture (Foreign Currency), Affirmed at B2….Outlook, Changed To Stable From NegativeREGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. 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Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Mariko Semetko VP – Senior Credit Officer Corporate Finance Group Moody’s Japan K.K. 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