March 20, 2014 12:00 am JST

SoftBank's debt challenge

MAI NEMOTO, Nikkei staff writer

TOKYO -- An aggressive acquisitor, SoftBank had an interest-bearing debt of 9.22 trillion yen ($90.88 billion) at the end of December, up 150% from nine months earlier. Its interest payments on bank loans and corporate bonds are projected to rise to roughly 300 billion yen in fiscal 2014. If it acquires T-Mobile US later this year, its debt load would further increase to 12 trillion yen, according to one projection.

     That would be a heavy debt burden for a company generating 6 trillion yen or so in annual revenues.

     Yoshimitsu Goto, an executive officer in charge of corporate finance at SoftBank, looks at it from a different viewpoint. The debt load, he said, "is lighter than it was immediately after taking over Vodafone's Japanese unit. And it is being well-managed."

     In laying out an M&A strategy, SoftBank pays particular attention to its net interest-bearing debt relative to EBITDA (earnings before interest, taxes, depreciation and amortization), a rough measure of its operating cash flow. It had more than six times as much interest-bearing debt as EBITDA on a net basis immediately after the Vodafone acquisition, in 2006, but the ratio was slightly more than three times at the end of last December.

     Moreover, SoftBank's mobile phone business generates steady monthly income from subscriber fees, so it is easy to predict a future cash flow, enabling the mobile carrier to present reliable repayment plans to its banks.

     SoftBank has another strength that can significantly reduce its heavy debt burden: It has equity stakes in numerous fast-growing companies and would be able to raise gobs of money by selling these shareholdings. The Alibaba Group of China, for example, announced March 15 that it will list its shares in the U.S. Its market capitalization is estimated to equal $100 billion or so when its stock debuts. It is said that SoftBank would be able to reap more than $30 billion in unrealized profit.

     SoftBank has played this game before -- and won. It gradually sold its shareholdings in Yahoo, in which it once held a stake of more than 30%, after the U.S. Internet company went public, then used the proceeds to repay bank loans and acquire other companies. 

     Besides Alibaba, SoftBank has stakes in Yahoo Japan, GungHo Online Entertainment, an online game developer, and other businesses. It is these group companies that financially support the SoftBank empire, enabling Chairman and CEO Masayoshi Son to quickly decide to invest big in what he sees as promising startups.