S&P Global Inc. lowered its outlook for SoftBank Group Corp. to negative from stable, saying plans for an additional $30 billion investment in OpenAI may hurt the Japanese company's liquidity and the credit quality of its assets.
The revised outlook follows SoftBank's decision last month to deepen its investment in the ChatGPT maker after already injecting more than $30 billion into OpenAI and funding other artificial intelligence ventures. S&P affirmed a “BB+” long-term issuer credit rating on the company, saying SoftBank could limit negative financial impact by selling assets.
“The company's investments in AI, including OpenAI, mostly involve fledgling startups and private companies that we believe are exposed to significant AI innovation risk and fierce competition,” the ratings agency said in a statement Tuesday. “We see OpenAI as one of its investments with the weakest credit quality.”
A representative of SoftBank praised the fact that S&P kept its long-term rating. “S&P gives due consideration to our proven record of managing our financial foundation under stress,” the spokesperson said in an e-mail. Last year, SoftBank sold off assets including stakes in T-Mobile US Inc. and Nvidia Corp. to help finance founder Masayoshi Son's bets on AI.
The additional investment in OpenAI will be deployed through three separate $10 billion tranches over the course of the year, lifting SoftBank's stake in the US startup to 13% from around 11% in December. OpenAI's share of SoftBank's portfolio will likely rise to a level comparable to that of UK-based chip designer Arm Holdings Plc, S&P said, noting the proportion of unlisted shares would soar above 50% from an estimated 42% in December.
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“The liquidity of SoftBank Group's investment portfolio will worsen because OpenAI now accounts for a bigger share of it,” S&P said. The company has listed assets to sell to ease its financial burden, but the timing of such sales is uncertain, it said. “Pressure on the ratings will increase if SoftBank Group fails to take swift easing measures, such as selling holdings.”
What Bloomberg Intelligence Says
SoftBank Group's negative outlook from S&P, rather than a CreditWatch placement, allows for time to defend its BB+ rating by selling assets to bring adjusted loan-to-value below 35%. An IPO of OpenAI would also be needed to boost portfolio liquidity. Still, execution could prove challenging as heightened geopolitical risk and a potential AI bubble are likely to pressure technology valuations, keeping LTV weak and potentially delaying OpenAI's already uncertain listing timeline.
Sharon Chen, credit analyst
The additional bet on OpenAI may also hurt the Japanese company's loan-to-value ratio, S&P said. SoftBank has for years used the LTV ratio to demonstrate its ability to pay off debt.
S&P said it will consider revising up the outlook if liquidity of SoftBank's portfolio improves through the initial public offerings of assets including OpenAI, at the same time that the company maintains investment portfolio quality and improves its LTV ratio through asset sales.
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