Credit Market Takes SoftBank’s 25% Arm Stake Purchase in Stride

The cost to insure SoftBank’s debt against default was indicated 5.5 basis points lower at 225 basis points, according to a trader Tuesday. If it holds, the move would mark the biggest decline in a week, according to CMA data. The Japanese tech conglomerate’s credit default swaps dropped to a two—year low of about 200 basis points on July 31.

The CDS move suggests investors are more focused on the overall positive impact that Arm’s planned initial public offering, which is set to be the biggest in the US this year, will have on SoftBank’s finances. The UK chip designer’s stock listing is expected to increase the liquidity of SoftBank’s investment portfolio and allow the parent firm to more easily monetize its stake in the future.

“Overall, the Arm IPO is credit positive as it could raise funds” and improve the portion of listed shares in SoftBank’s portfolio, said Bloomberg Intelligence credit analyst Sharon Chen. Chen said her view on the stake purchase itself is negative as the “deal uses up the expected proceeds from the IPO, which reduces the amount available for debt repayment.”

Arm revealed in its IPO filing that SoftBank will remain its controlling shareholder after it begins trading, with SoftBank’s acquisition of the 25% stake from Son’s Vision Fund. SoftBank has been boosting its cash pile over the past two years by selling down its shareholding in one-time crown jewel Alibaba Group Holding Ltd., after rising interest rates hurt its investments in startups. The group had a cash position of 5.8 trillion yen at the end of June, compared with 2.1 trillion yen two years earlier.

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