Home / Business and Economy / S&P Lowers SoftBank Outlook Over OpenAI Investment
S&P Lowers SoftBank Outlook Over OpenAI Investment
3 Mar
Summary
- S&P downgraded SoftBank's outlook due to liquidity concerns from OpenAI investment.
- SoftBank plans an additional $30 billion investment in OpenAI this year.
- Ratings agency affirmed a BB+ long-term credit rating for SoftBank.
S&P Global Inc. has downgraded SoftBank Group Corp.'s outlook to negative from stable. This revision stems from concerns that SoftBank's planned additional $30 billion investment in OpenAI may adversely affect the company's liquidity and the credit quality of its assets.
Last month, SoftBank decided to increase its investment in the ChatGPT maker. This follows an initial injection of over $30 billion into OpenAI and other artificial intelligence ventures. S&P did affirm SoftBank's long-term issuer credit rating at BB+.
The ratings agency noted that SoftBank's AI investments, including OpenAI, primarily involve nascent startups. These companies are perceived to face significant innovation risks and intense competition. OpenAI is specifically identified as an investment with weaker credit quality.
SoftBank's spokesperson highlighted the affirmation of the long-term rating, emphasizing the company's proven financial management. Last year, SoftBank divested assets, such as stakes in T-Mobile US Inc. and Nvidia Corp., to fund founder Masayoshi Son's AI initiatives.
The additional $30 billion for OpenAI will be disbursed in three $10 billion tranches throughout the year. This will elevate SoftBank's stake in the US startup to 13% from approximately 11% in December. The proportion of unlisted shares in SoftBank's portfolio is projected to exceed 50%, up from an estimated 42% in December.
S&P warned that SoftBank's investment portfolio liquidity will likely worsen as OpenAI constitutes a larger share. While SoftBank has listed assets for sale to ease financial pressure, the timing of these sales remains uncertain. Increased pressure on ratings is anticipated if SoftBank does not promptly implement easing measures, such as asset disposals.
The additional OpenAI investment could also negatively impact SoftBank's loan-to-value (LTV) ratio, a key metric for demonstrating its debt repayment capacity. S&P indicated that a revised outlook upward would depend on improved portfolio liquidity through IPOs of assets like OpenAI, alongside maintaining investment quality and enhancing the LTV ratio via asset sales.
