Tokyo: Billionaire Masayoshi Son’s SoftBank Corp. is girding for more acquisitions by becoming Japan’s first non-financial company to sell subordinated debt to individuals.

SoftBank, which paid $22 billion for the US’s Sprint US Inc. last year, will bolster its balance sheet by offering 400 billion yen ($3.4 billion) of bonds that rank after senior debt, should it default, the Tokyo-based company said on 19 November.

The seven-year notes are being marketed at an interest rate of 2.3% to 2.8%, compared with 0.21% for similar- maturity government debt and 0.025% for a one-year deposit.

The wireless operator, which also has Internet investments including a stake in China’s Alibaba Group Holding Ltd., is on track to be nation’s biggest seller of bonds for a second consecutive year. Its note sales to individuals are set to reach 1.1 trillion yen, up from 700 billion yen last year, as SoftBank seeks to increase the number of stakeholders in Japan’s most- profitable mobile phone company.

“Mr. Son and SoftBank are very popular among Japanese," said Mana Nakazora, the chief credit analyst in Tokyo at BNP Paribas SA. “It would be hard for SoftBank to raise 400 billion yen from institutional investors."

SoftBank’s debt sale exceeds second-placed Mizuho Financial Group Inc. by 230 billion yen. The carrier accounted for 9.5% of corporate bonds sales last year, according to data compiled by Bloomberg. SoftBank is the first seller of subordinated bonds among non-financial firms to individuals based on the data that stretches back to 1999.

Major seller

SoftBank ended its efforts to merge Sprint, the US’s third-biggest carrier, with No. 4 T-Mobile in August as regulators remained skeptical that any potential benefits would be worth allowing the number of national competitors to fall below four. Son said on 8 August after news of the end in talks that he is open to additional acquisitions and the company he founded takes an aggressive view of growth opportunities.

“Our purpose is to raise funds in a steady manner so we can take action speedily if we seek to do M&A in the future to grow the business," said Hiroe Kotera, a spokeswoman for SoftBank in Tokyo. The company’s first sale of a yen-denominated subordinated bonds is also aimed at attracting new investors and bolstering finances, she said.

SoftBank hawks

SoftBank sold bonds to individuals in May named after the company’s baseball team, Fukuoka SoftBank Hawks, and investors were given a tote bag with an imprint of a white dog, the mascot used in its television advertisements, said Kotera. “No freebies were provided this time," she said.

SoftBank last sold bonds to Japanese individuals in August when it issued 400 billion yen of five-year securities at 1.26%, 19 basis points lower than the yield on similar- maturity paper sold in May. The yield on the last debentures sold by the company to institutional investors in November 2013 was 1.351% on Tuesday, down from a high of 2.16% in January, when T-Mobile acquisition concerns pushed out spreads.

“Credit investors aren’t going to take anything cheaply given SoftBank’s huge leverage and determination for M&A," said Yusuke Ueda, a credit analyst at Bank of America Merrill Lynch in Tokyo. “If they want to raise a lot of money, they have to go to retail investors."

Profit outlook

SoftBank had net income of 527 billion yen in the 12 months to 31 March, compared with NTT Docomo Inc.’s 465 billion yen, the first time for it to surpass the former state-owned carrier. Sales at Son’s company, founded in 1981 as a software wholesaler, also exceeded NTT Docomo’s for the first time.

The telecom service provider has investments in more than 1,300 companies, including Alibaba, Sprint and Yahoo Japan Corp. Son’s initial $20 million investment in Alibaba produced an $87 billion pay-off with the IPO of China’s biggest Internet shopping mall earlier this year.

The company’s debt rose to 9.98 trillion yen at the end of September from 8.84 trillion yen a year earlier, according to data compiled by Bloomberg. That’s greater than the company’s market capitalization of about 9.7 trillion yen.

Bank of Japan Governor Haruhiko Kuroda yesterday urged business leaders to use profits more productively, saying hoarding cash will become costly as the central bank stamps out deflation. The 10-year bond yield declined 1 1/2 basis points to 0.435 %. The yen traded at 117.85 per dollar as of 6:21 p.m. in Tokyo, bringing its year-to-date decline to 11 %. One basis point is 0.01 %age point.

Credit Outlook

SoftBank was stripped of its investment-grade rating by Moody’s Investors Service and Standard & Poor’s in July of last year after completing its acquisition of Sprint. The company is rated A- by Japan Credit Rating Agency, Ltd., the fourth-lowest investment grade, with a stable outlook.

The bond sale may also be targeted at supporting JCR’s A- zone credit rating, which allows the company’s bonds to be included in the Nomura-BPI debt indexes, said Hidetoshi Ohashi, the chief executive officer of Japan Credit Advisory Co.

“A change in SoftBank’s credit outlook to negative alone by JCR would push out spreads," said Ohashi. Bloomberg

—With assistance from Pavel Alpeyev in Tokyo.