SoftBank Issues 2000 Billion Yen Hybrid Bond at 4.556% for AI Investment

SoftBank Group Corp. has issued a 2000 billion yen hybrid bond with a coupon rate of 4.556%, marking the highest yield for a Japanese bond this year. The bond, which is equivalent to approximately 13 billion US dollars, is part of SoftBank's strategic investment in artificial intelligence (AI) technologies. This move underscores the company's commitment to leveraging AI for future growth and innovation.

The issuance of this bond comes at a time when interest rates in Japan are relatively low, making it an opportune moment for SoftBank to secure funding at a competitive rate. The 4.556% coupon rate is notably higher than the yield on perpetual subordinated bonds issued by Japan Airlines Co., indicating the market's perception of the risk associated with SoftBank's investment strategy.

SoftBank's decision to issue a hybrid bond reflects its aggressive approach to funding its AI initiatives. Hybrid bonds combine features of both debt and equity, providing issuers with flexibility in managing their capital structure. This type of bond allows SoftBank to raise capital without diluting its equity, which is crucial for maintaining control over the company's strategic direction.

The high coupon rate of 4.556% suggests that investors are demanding a premium for the risk associated with SoftBank's AI investments. This premium is likely a reflection of the uncertainty and potential volatility in the AI sector, as well as the broader economic environment. Despite these risks, SoftBank's commitment to AI highlights its confidence in the long-term potential of this technology to drive growth and innovation.

SoftBank's issuance of this hybrid bond is a significant move in its ongoing strategy to position itself as a leader in the AI sector. By securing funding at a competitive rate, the company can continue to invest in cutting-edge technologies and expand its AI capabilities. This move is part of a broader trend in the tech industry, where companies are increasingly turning to hybrid bonds to fund their growth initiatives.

This bond issuance is part of SoftBank's broader strategy to fund its ambitious "Stargate" AI plan, which aims to invest 5000 billion US dollars in AI technologies. The company has already issued 8200 billion yen in bonds this fiscal year, making it the top bond issuer among Japanese companies. The large volume of bond issuance has increased SoftBank's financing costs, as evidenced by the record-high coupon rate on its 5-year bonds.

The hybrid bond issued by SoftBank includes a "deferred interest payment" clause and is subordinated to senior debt in the repayment order. The company expects that credit rating agencies will classify approximately half of the bond's principal as equity capital. Initially, SoftBank planned to raise around 1000 billion yen through this issuance, later increasing the target to 1500 billion yen, and finally settling on 2000 billion yen.

Given the current upward trend in interest rates and strong market expectations for further rate hikes, SoftBank's decision to lock in funding at this time is a prudent move. Despite the widening yield spread, securing funds promptly is a logical step. Additionally, using hybrid bonds with equity-like features helps maintain adequate liquidity, mitigating potential impacts on credit ratings due to financing activities.