Alibaba IPO Enriches SoftBank As Sprint Cuts Back

Alibaba Group's massive IPO has enriched SoftBank and founder Masayoshi Son, yet SoftBank-controlled Sprint might go begging for funds for expansion.

As Sprint (NYSE:S) pares back a national network upgrade, Son aims to use SoftBank's financial muscle to expand in India and possibly in media and content. So far, no word on any fresh Sprint infusion.

When SoftBank acquired 80% of Sprint for $22 billion in 2013, it pumped $8 billion into Sprint's balance sheet. Bond raters Moody's and Standard & Poor's cut SoftBank's credit rating to junk levels.

SoftBank and its CEO, Masayoshi Son, have priorities besides Sprint, and a valuable stake in China's Alibaba. View Enlarged Image

And while the Alibaba (NYSE:BABA) stake gives SoftBank cachet, SoftBank still holds more than $86 billion in acquisition-fueled debt.

"Analysts have been punch drunk by Alibaba and the success of its IPO and so many seem in awe of what Son has done," said Amir Anvarzadeh, a manager of Japanese equity sales at BGC Partners in Singapore. "Alibaba was a brilliant (investment), but SoftBank last year paid 10% of corporate Japan's (entire) interest payments to banks."

"Sprint is never going to turn around if they don't put money into it," Anvarzadeh added. "Sprint is retrenching back from expansion plans. Its free cash flow negative. And it's difficult to see how Sprint's subscriber numbers are going to be stabilized in the medium term."

Japan Worries Dog SoftBank

SoftBank stock has fallen on Tokyo's exchange over worries that its success in Japan's wireless market, where it took on NTT DoCoMo (NYSE:DCM) and KDDI, might not be repeated in the U.S. SoftBank this month lowered its profit outlook by 10%, dragged down by Sprint.

Sprint stock plunged Nov. 4 after it reported a wider-than-expected fiscal Q2 loss and continued to bleed wireless subscribers. Sprint's stock is down nearly 30% from July 10, 2013, when SoftBank acquired 80% of the company. It's down some 60% from late December 2013, when investors began fretting that Son's attempts engineer a merger with thriving T-Mobile US (NYSE:TMUS) would fail because of regulatory hurdles.

Son's track record includes a $20 million investment in Alibaba in 2000. Post-IPO, SoftBank owns 30% of Alibaba, China's e-commerce leader, whose market valuation is near $275 billion. SoftBank didn't sell shares in Alibaba's September IPO.

Higher interest rates pose a worry for SoftBank's debt-servicing costs, some analysts say. Even with its Alibaba stake, SoftBank might decide not to throw money at struggling Sprint.

Analysts say one sign SoftBank is not opening its wallet was Sprint's decision to pull back on plans to upgrade its network across the U.S. using its swath of 2.5 gigahertz spectrum. Sprint acquired Clearwire last year, beating out Dish Network (NASDAQ:DISH), mainly to get the 2.5 GHz spectrum. Sprint now plans to upgrade its wireless network only in five large U.S. markets, thus conserving cash.

 

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