SoftBank Group (SBG) is set to issue a 1 trillion yen (approximately $9 billion) bond aimed at individual investors to expand its investments in artificial intelligence (AI). This marks the largest bond issuance by a Japanese company targeting individual investors.
According to the Nihon Keizai Shimbun on August 19, SBG is preparing to issue a seven-year bond, with the total amount expected to reach 1 trillion yen. Specific terms, including interest rates, will be determined in early September. This will be SBG's third issuance of bonds for individual investors this year, following offerings in April and June.
The 1 trillion yen issuance is unprecedented in Japan's individual bond market. The previous record was set by SBG itself last year with a 600 billion yen issuance. Even when including bonds for institutional investors, this issuance matches the all-time high of 1 trillion yen issued by NTT Finance in December 2020.
The funds raised are expected to be used for repaying existing bonds and investing in AI. Specifically, SBG plans to allocate funds for mergers and acquisitions in the 'physical AI' sector, where AI controls robots autonomously. SBG intends to acquire the robotics division of Swiss automation company ABB for $5.4 billion. The funds may also be used to repay bridge loans borrowed from Japanese and U.S. financial institutions for additional investments in OpenAI.
SBG's ability to issue large bonds is attributed to improved financial conditions. The company's creditworthiness is assessed by its loan-to-value (LTV) ratio, which measures net debt against the value of its holdings. A lower LTV indicates a smaller debt burden relative to assets. As of the end of June, SBG's LTV was 13%, down 4 percentage points from March. The increase in the value of its stake in subsidiary Arm, a British semiconductor design firm, has provided SBG with more capacity to take on debt. S&P Global Ratings has assigned SBG a credit rating of 'BB+' and recently upgraded its outlook from 'negative' to 'stable' due to improved financial conditions following Arm's stock price increase.
However, despite the improved financial conditions, the burden of raising funds is increasing. Market forecasts suggest that the interest rate for this seven-year bond could reach the high 4% range. The interest rate for SBG's individual seven-year bond issued last year was 3.98%, while the rate for the December 2024 issuance was 3.15%.
The rising cost of capital is not unique to SBG. The demand for funds in the global bond market has surged due to the significant capital required for expanding AI investments. Major cloud service providers are issuing large bonds, and governments are increasing their bond issuance to fund defense spending and tax cuts, intensifying competition for investor funds in the bond market.
While rising interest rates have dampened institutional investor demand, the issuance of bonds for individual investors is on the rise. The total issuance of bonds for individual investors this year, including SBG's upcoming issuance, is projected to reach 2.8 trillion yen, surpassing last year's total and setting a new record. An executive from a major securities firm noted, 'There is a limit to the amount of individual bonds available for sale, and many companies are eager to issue bonds.'
* This article has been translated by AI.
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