Moody's Corporation has upgraded its outlook on SoftBank Group from negative to stable two months after the Japanese investment firm took Arm Holdings PLC (NASDAQ:ARM) public in the biggest initial public offering (IPO) of the year.
According to Moody’s, the Arm IPO enhanced transparency in SoftBank’s extensive portfolio of unlisted assets, which has been a source of contention for the leading rating agencies.
Following the Arm IPO, more than 60% of the Japanese company's total portfolio value is now in listed assets. This shift is seen as a positive step in addressing the concerns previously raised by credit ratings firms about SoftBank's exposure to private market valuations.
Despite the upgrade, Moody's notes that SoftBank's rating is still constrained by factors such as low interest coverage and reliance on dividends.
Softbank also suffered a reputational hit due to its multibillion-dollar bet in WeWork prior to the real estate disruptor’s disastrous IPO in October 2021.
Echoing this misstep, Moody’s stated on Monday: “A significant increase in new investments into emerging startups with untested business models or speculative opportunities could add to downward pressure if they lead to an erosion in its liquidity or the asset quality of its investment portfolio.”
Yet the new Ba3 rating reflects not only the improved transparency but also SoftBank's strong liquidity at the holding company level, capable of covering debt maturities over the next five years.
“An upgrade will require greater visibility over the company's long-term investment strategy, risk-return profile and asset allocation policy,” said Moody’s.
SoftBank has a contentious history with Moody's regarding its ratings. The Japanese firm has criticised Moody's coverage in the past and has reiterated its request for Moody's to cease the publication of unsolicited credit ratings, claiming they do not reflect the company's actual situation.
Standard & Poor's also revised its outlook on SoftBank to positive after the Arm IPO, indicating a broader recognition of the company's improved financial health following this flotation.