TEXT-S&P ratings on Softbank unaffected by eAccess Merger
(The following statement was released by the rating agency)
Oct 02 - Standard & Poor's Ratings Services today said its ratings on Japan's Softbank Corp. (BBB/Stable/--) would not be immediately affected by the announcement that it will merge with fourth-ranked telecom carrier eAccess Ltd. (BB+/Watch Pos/--). The rating on eAccess is lower than that on Softbank, but the impact on Softbank's financial standing is limited, in our view, because the merger will be made via a stock swap, and eAccess' debt--JPY199 billion as of the end of June 2012--is almost equivalent to 30% of Softbank's cash and equivalents of JPY758 billion as of June 2012. We estimate that the newly merged entity's adjusted total debt to EBITDA at the end of March 2013 will likely be about 2.5x, which is below our downgrade trigger of 3.0x.
We view that competition in Japan's mobile market has intensified, backed by the fast migration to smartphones and high-speed communications including Long-Term-Evolution (LTE). Competition is likely to intensify, in our view, as both Softbank and KDDI Corp. (not rated) started selling the iPhone5 in September 2012. If the merger proceeds as planned, eAccess' 1.7GHz core band for LTE will be an advantage for Softbank, in that it will increase the choice of bandwidths for LTE services with tethering functions and differentiate itself from its rivals in the growing mobile broadband market, in our view. Despite the intensifying competition and potential threat of margin squeezes, the benefits from cost savings through the merger will enhance Softbank group's cost structure to some extent, in our view.
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