TOKYO -- Moody's on Wednesday downgraded SoftBank Group's credit rating by two notches and put the company under review for further downgrade, citing its "aggressive financial policy" during market turmoil.
The move tips SoftBank's rating further into junk territory and marks a blow for CEO Masayoshi Son's effort to shore up confidence with a $41 billion asset sale to boost share buybacks and cut debt.
Moody's said the downgrade reflected SoftBank's "aggressive financial policy, as reflected by the unexpected size and apparent urgency of the rapid series of share repurchases, just as the drop in the stock market has put the value and liquidity of its portfolio value under stress."
"Asset sales will be challenging in the current financial market downturn, with valuations falling and a flight to quality," said Motoki Yanase, Moody's Vice President and Senior Credit Officer.
"In particular, the value and credit quality of [SoftBank's] portfolio would deteriorate if the company reduces some of its most liquid and highly-valued listed investments" such as its stakes in Alibaba Group Holding, SoftBank Corp. and Sprint, he added.
"It is unclear why [SoftBank] is undertaking such a dramatic recapitalization during a time of severe stock and market volatility. Monetizing a significant part of its investment at this time risks a discount as well as a deterioration in the quality and value of its remaining portfolio."
In response, SoftBank said it had asked that Moody's withdraw its bond ratings.
"While Moody's continues to characterize [SoftBank's] financial policy as aggressive, we believe that, even applying Moody's stated rating criteria to the Program, there is no rationale for a two-notch downgrade," SoftBank said.
The downgrade is "based on excessively pessimistic assumptions," SoftBank added.
The company launched its asset sale plans on Monday, saying it would "monetize" parts of its extensive portfolio over the next 12 months. Shares in the group have rebounded sharply since the proposal.
SoftBank has said its net debt stands at 4.8 trillion yen ($43 billion), which is less than a fifth of the total value of the shares it owns. But that excludes debt at its subsidiaries, which SoftBank classifies as "non-recourse". When that is added, consolidated net debt stands at 15.7 trillion yen.