Softbank’s credit rating cut to junk after Sprint’s acquisition

Standard & Poor has cut Japanese Softbank company rating to junk after the firm was successfully approved by Federal Communications Commission for its bid for Sprint worth more than $21 billion. A lower credit rating indicates a higher risk of default and would raise borrowing costs.

The firms credit rating was cut to BB+ from BBB, which is the highest non-investment grade. After being given a permission by FCC to proceed with acquisition of Sprint Nextel, the road to the US market is clear for the Japanese company. The Softbanks CEO Masayoshi Son wants to use the acquisition to raise the Tokyo-based company to the world’s biggest mobile phone operator. SoftBank won a bidding war for Sprint, the third-largest U.S. carrier, competing with Dish Network Corp.

“Sprint Nextel’s exposure to intense competition in the U.S. market is unlikely to subside substantially in the next two to three years,” S&P said in the statement. Still, “we expect its operating performance to improve gradually, in part reflecting cost reductions and other merger benefits.”

Last year Moody’s Investors Service and S&P put the Japanese carrier’s rating on review, saying a cut to below investment grade was possible. Japan Credit Rating Agency Ltd. has said it may lower its ranking to three steps above junk.

SoftBank, has about 42 million subscribers and is the fastest-growing mobile carrier in Japan. It ranks behind NTT DoCoMo Inc. and KDDI Corp. in Japanese sales.

In Japan Softbank benefited from being the first carrier in the country offering Apples iPhone. Last year KDDI Corp also started sales of the devices.

Operating profit, for SoftBank’s domestic businesses probably will exceed 1 trillion yen in the year started April, up from 745 billion yen a year earlier, the company said April 30. The company wants to replicate its domestic success with Sprint’s 55.2 million subscribers by improving its networks and services, according to CEO Son. Annual savings at Sprint will be about $2 billion in the first four years from cost cutting, he said at SoftBank’s June 21 annual shareholder meeting.