S&P downgrades SoftBank's rating to negative, stating that the $30 billion investment in OpenAI may harm credit quality

S&P Global has downgraded SoftBank Group's credit outlook from stable to negative, citing SoftBank's plan to invest an additional $30 billion in OpenAI, which may impair its liquidity and asset credit quality. This rating action has raised new concerns about the financial stability of the Japanese technology investment giant.

In a statement on Tuesday, S&P maintained SoftBank's long-term issuer credit rating at "BB+", but warned that if SoftBank fails to quickly take measures such as asset sales to alleviate the situation, the rating will face further downgrade pressure. SoftBank expressed appreciation for S&P's maintenance of the long-term rating, with a spokesperson stating in an email:

"S&P has fully considered our good track record of managing our financial foundation under pressure."

The outlook downgrade directly affects the market's judgment of SoftBank's debt risk. S&P explicitly pointed out that OpenAI is one of the weakest credit quality assets in SoftBank's portfolio, and as the proportion of non-listed assets rises significantly, the overall liquidity of SoftBank's investment portfolio will further deteriorate.

Additional Investment Plan: Three Phases of Funding, Increasing Stake to 13%

Last month, SoftBank announced it would further increase its investment in OpenAI, having already invested over $30 billion, planning to complete a total of $30 billion in three phases of $10 billion each within the year. After this funding is completed, SoftBank's stake in OpenAI will rise from approximately 11% in December last year to 13%.

S&P noted that at that time, OpenAI's proportion in SoftBank's investment portfolio will be comparable to that of British chip designer Arm Holdings. More concerning is that the proportion of SoftBank's non-listed assets is expected to surge from an estimated 42% last December to over 50%, which will significantly weaken the overall liquidity of its investment portfolio.

Credit Concerns: High Risks in AI Startups, Increasing Liquidity Pressure

S&P has expressed clear concerns about the credit quality of SoftBank's AI investment portfolio. In its statement, S&P said:

"SoftBank's investments in the AI sector, including its investment in OpenAI, mostly involve early-stage startups and private companies, which we believe face significant AI innovation risks and intense competition."

The additional investment may also drag down SoftBank's long-standing loan-to-value ratio used to measure debt repayment capacity. S&P stated that if the liquidity of SoftBank's investment portfolio does not improve, rating pressure will continue to rise, and asset sales are identified as a key alleviation measure, but the timing of such sales remains uncertain.

Last year, SoftBank had already provided funding support for founder Masayoshi Son's AI bets by selling stakes in companies like T-Mobile US and NVIDIA.

Path to Rating Improvement: IPOs and Asset Sales are Key

S&P has clearly outlined the conditions for raising SoftBank's outlook: it needs to improve portfolio liquidity through IPOs of assets, including OpenAI, while maintaining portfolio quality and enhancing loan-to-value ratios through asset sales.

Bloomberg Intelligence credit analyst Sharon Chen pointed out that S&P's negative outlook rather than a credit watch gives SoftBank some time—by selling assets to adjust the LTV below 35%, while an IPO of OpenAI is also a necessary condition for enhancing portfolio liquidity However, she also warned that rising geopolitical risks and the potential AI bubble could suppress the valuations of tech assets, putting continued pressure on LTV and possibly further delaying the already uncertain IPO timeline for OpenAI