Standard & Poor's downgrades SoftBank's credit rating outlook to "negative": additional $30 billion bet on OpenAI may jeopardize liquidity.

Standard & Poor's has revised the rating outlook of SoftBank Group from stable to negative, citing SoftBank's plan to add an additional $30 billion investment in OpenAI, which could potentially harm the liquidity and credit quality of the Japanese company's assets. This rating outlook adjustment follows SoftBank's decision last month to increase its investment in the developer of ChatGPT. Previously, SoftBank had already invested over $30 billion in OpenAI and other artificial intelligence companies. Standard & Poor's maintained the company's long-term issuer credit rating at "BB+" and stated that SoftBank can limit the negative financial impact by selling assets. The rating agency stated in a statement on Tuesday: "The company's investments in the field of artificial intelligence, including OpenAI, mainly involve startups and private companies that we believe are facing significant risks of artificial intelligence innovation and fierce competition. We consider OpenAI to be one of its worst investments in terms of credit quality." A SoftBank representative appreciated Standard & Poor's decision to maintain their long-term rating. The spokesperson stated in an email: "Standard & Poor's has taken into account our excellent record of managing financial foundations under pressure." Last year, SoftBank sold assets, including stakes in T-Mobile US and NVIDIA Corporation, to fund founder Masayoshi Son's investments in artificial intelligence. SoftBank plans to add $10 billion in additional investment to OpenAI each year in three phases, increasing its stake in the US startup to 13% from around 11% in December last year. Standard & Poor's stated that OpenAI's share in SoftBank's investment portfolio is expected to reach a level similar to that of Arm Holdings in the UK, with the proportion of non-publicly traded shares increasing from around 42% in December last year to over 50%. Standard & Poor's stated: "As OpenAI's share in SoftBank Group's investment portfolio continues to expand, its liquidity will deteriorate further." The company has listed assets for sale to alleviate financial burdens, but the timing of these sales is uncertain. Standard & Poor's also stated: "If SoftBank Group fails to take prompt measures, such as selling stakes, its rating will face greater pressure." Analysis suggests that Standard & Poor's negative outlook on SoftBank Group's rating, rather than placing it on credit watch, allows time for the company to lower its adjusted debt-to-value ratio to below 35% by selling assets to defend its BB+ rating. Additionally, an IPO from OpenAI would also help improve the liquidity of the investment portfolio. However, due to increased political risks and the potential artificial intelligence bubble putting pressure on technology companies' valuations, the debt-to-value ratio is likely to continue declining, possibly further delaying the already uncertain IPO timeline for OpenAI, thus posing challenges for its execution. Standard & Poor's also mentioned that the additional investment in OpenAI could also harm the debt-to-value ratio of the Japanese company. SoftBank has always used the debt-to-value ratio to demonstrate its debt repayment ability. Standard & Poor's stated that if SoftBank improves the liquidity of its investment portfolio by including OpenAI in its initial public offering, while maintaining the quality of the portfolio and improving its debt-to-value ratio through asset sales, Standard & Poor's would consider revising its outlook.