ARMH Arm Holdings Plc ADS Each Representing 3 Ordinary Shares (MM)

Mizuho's bridge loan to SoftBank highlights a move toward overseas financing

By Atsuko Fukase 

TOKYO -- Internet and telecommunications giant SoftBank Group Corp.'s $32 billion buyout of U.K.-based ARM Holdings PLC is good news for Mizuho Bank, underscoring how Japanese lenders see financing cross-border deals as a growth area.

Mizuho, the core banking unit of Mizuho Financial Group Inc., will provide a bridge loan of about Yen1 trillion, or roughly $10 billion, to back SoftBank's bet on ARM, a chip designer, SoftBank said Monday when announcing the buyout.

Corporate Japan's appetite for domestic loans remains weak, despite the Bank of Japan's efforts over the past three years to increase demand by lowering interest rates through its extraordinary monetary policies. The BOJ's introduction early this year of a negative interest rate on some bank reserves has driven yields on government debt to record lows, and some into negative territory, while pressuring banks' profits.

In search of opportunity, many Japanese lenders have turned to financing mergers and acquisitions, mainly of Japanese companies seeking to buy growth abroad.

Before SoftBank's acquisition of ARM, Japan's outbound deal volume had lagged behind so far this year, dropping more than 60% from a record level during the same period last year, according to data provider Dealogic. SoftBank's deal for ARM raised outbound M&A to $51.7 billion year-to-date, slightly behind last year's record $54.9 billion, according to Dealogic.

Mizuho, SoftBank's main lender, will likely end up sharing the financing on the deal with other banks such as Bank of Tokyo-Mitsubishi UFJ and Sumitomo Mitsui Banking Corp. in the next few months, according to a person familiar with the matter. SoftBank said in a statement that all or part of the bridge loan would be refinanced with longer terms.

Japanese companies are expected to continue seeking growth abroad through acquisitions, given Japan's sluggish economy and shrinking population. Analysts caution that Japanese lenders, faced with a low-rate environment at home, may take on excessive risk in seeking to finance deals overseas.

Nana Otsuki, an analyst at Monex Securities, noted that SoftBank's debt carries a junk rating from Moody's and Standard & Poor's. "Mizuho may be taking too much risk" by providing Yen1 trillion as the sole lender to a company with a junk status, Ms. Otsuki said.

An acquisition the size of the SoftBank-ARM deal often prompts ratings companies to review their ratings of corporate debt. S&P declined to comment on whether it would review SoftBank's rating. Moody's couldn't immediately be reached for comment.

Asked whether the bank was taking on too much risk, a Mizuho spokeswoman said the lender recognized the strategic significance of the deal for SoftBank and wanted to support its client.

Write to Atsuko Fukase at atsuko.fukase@wsj.com

(END) Dow Jones Newswires

July 20, 2016 02:48 ET (06:48 GMT)

Arm Holdings Plc ADS Each Representing 3 Ordinary Shares (MM) (NASDAQ:ARMH)
Historical Stock Chart
From Mar 2024 to Apr 2024

Arm Holdings Plc ADS Each Representing 3 Ordinary Shares (MM) (NASDAQ:ARMH)
Historical Stock Chart
From Apr 2023 to Apr 2024