Softbank Seeks Record $12 Bln Financing for Vodafone

July 21 (Bloomberg) -- Softbank Corp. plans to borrow 1.4 trillion yen ($12 billion) in Japan's biggest asset-backed loan to refinance debt used to acquire the local mobile-phone unit of Vodafone Group Plc, people involved in the transaction said.

Citigroup Inc., Deutsche Bank AG and Mizuho Financial Group Inc. are leading negotiations to replace a 1.28 trillion yen one- year loan with longer-term financing, said three people who asked not to be identified until a deal is signed. Softbank has agreed to set aside revenue from phone customers in a separate unit to cover repayment, they said.

Billionaire Masayoshi Son, who founded Softbank in 1981, is seeking to reassure investors who are concerned a slump in profit at the phone unit would make it harder to obtain longer-term funding. Shares in the Tokyo-based company fell 33 percent since the takeover was announced in March and yields on its five-year bonds doubled this year.

``This is a lot of money so Softbank needs to get a good deal,'' said Osamu Kobayashi, a Tokyo-based analyst at Standard & Poor's, which is considering cutting the company's junk BB-credit rating. ``How they convert the short-term borrowing is the key. That will affect creditworthiness down the road.''

The new loans will have different maturities, none longer than 12 years, the people said. Softbank aims to win investment- grade ratings of A and BBB, higher than its own.

Yoshimitsu Goto, Softbank's Tokyo-based finance general manager, declined to comment. Citigroup spokeswoman Mika Nemoto, Deutsche Bank spokesman Aston Bridgman and Mizuho spokesman Hiroaki Kanno also declined to comment.

Shares, Bonds Slump

Softbank shares had their biggest drop in almost six months on July 7 after Merrill Lynch told investors to sell the stock and forecast a full-year loss for the company. Softbank is also Japan's second-largest Internet access provider.

Investors are also demanding a higher risk premium to hold Softbank bonds. The spread, or difference with yields on Japanese government debt, for the company's five-year bond maturing in September 2010 has widened to 310 basis points. The gap was 142 basis points in February before the talks with Vodafone became public. A basis point is 0.01 of a percentage point.

Shares of Softbank changed hands 4.1 percent lower at 2,010 yen as of 1:01 p.m. in Tokyo.

DoCoMo, KDDI

The acquisition gave Son, 48, a 17 percent share of subscribers in Japan's 8.9 trillion yen mobile-phone market where he trails NTT DoCoMo Inc. and KDDI Corp. Vodafone Chief Executive Officer Arun Sarin agreed to sell the unit after failing to raise profitability.

Softbank has introduced discounts and increased incentives to retailers in an effort to lure customers. The Vodafone K.K. unit in May said those costs helped drive up operating expenses 6 percent to 1.39 trillion yen, contributing to a 69 percent decline in net income.

Citigroup, Deutsche Bank and Mizuho were among the banks that arranged the one-year bridge loan in April to pay for the Vodafone acquisition. The new loans may be in place by September, the people said, meeting a timetable set by Son in May.

Sales of asset-backed bonds in Japan jumped 70 percent to 8.6 trillion yen in 2005, according to Deutsche Bank, surpassing corporate debt sales for the first time. Investors are attracted to such securities because they offer higher yields than corporate bonds.

The 1.4 trillion yen transaction would be more than 10 times larger than any previous asset-backed loan publicly disclosed in Japan, said Chinatsu Hani, a Tokyo-based analyst covering structured finance at Merrill Lynch & Co.

Bond Sales

Japanese companies with higher credit ratings are selling bonds to fund acquisitions. Kao Corp., Japan's largest maker of household goods, said last month it plans to sell bonds for the first time in 25 years to pay for a 410 billion yen acquisition of Kanebo Cosmetics Inc. Fuji Television Network Inc., Japan's biggest broadcaster, sold 50 billion yen of bonds in February to repay bank borrowings it used to acquire Nippon Broadcasting Inc.

Fuji Television's bonds were rated AA-, the fourth-highest of 10 investment grades, by Rating and Investment Information Inc. Kao is rated Aa2, the third-highest, by Moody's Investors Service, and AA-, the fourth-highest, by Standard & Poor's.