Japan's Softbank Corp. (9984.T) plans to raise about $12 billion by securitizing earnings of the cell phone unit it bought from Vodafone Group PLC (VOD.L), a source close to the matter said on Tuesday, allowing it to secure funds at a lower rate than with conventional loans.

Earlier this year, Softbank bought Vodafone Japan for 1.8 trillion yen after borrowing 1.3 trillion yen in short-term bridge loans, arranged by 17 banks led by Mizuho Financial Group, Deutsche Bank AG and Citigroup Inc.

The securitization scheme would set aside cash from Vodafone Japan for interest and principal payment. It would also mean a good chunk of its profit would be used to repay debt at a time when it faces tough competition with Japan's two largest mobile phone operators NTT DoCoMo (9437.T) and KDDI Corp (9433.T).

Shares of Softbank, a telecoms and Internet conglomerate, rose 3.79 percent to close at 2,190 yen. The benchmark Nikkei average ended 0.49 percent lower.

securitizing the cash flow of its mobile phone unit would allow Softbank, which was given high risk or junk debt rating of BB- by credit rating agency Standard & Poor's, to secure funding at a rate 1 percentage point lower than a bank loan, according to the business daily Nihon Keizai.

This is a good way for them to raise money, said Chibagin Asset Management fund manager Jun Morita. Softbank, which is in the process of refinancing the short-term loan, said it was finalizing terms and expects to decide a general outline of new loans, which would have different maturities, by the end of September.

The company wants to minimize interest costs, as such expenses are expected to total about 40 billion yen for the bridge loan, which lasts until March 2007, the end of the business year.

The billionaire chief of Softbank, Masayoshi Son, has said he expects cash flow at Vodafone Japan to remain abundant, allowing him to repay the debt. In the year ended March 31, the wireless unit had about 300 billion yen in earnings before interest, taxes, depreciation and amortization.

Softbank spokesman Naoki Nakayama declined to comment on whether the company planned to securitize its Vodafone Japan operations for the long-term loan.

The five-year credit default swap spread on Softbank was little changed at around 315 basis points on Tuesday, compared with the benchmark spread of about 25 basis points.

The biggest concern for debt and bond investors is whether holders of the new securitized instrument would enjoy preferred protection over holders of the company's existing bonds and debts or not, said Fumihito Gotoh, head of Japan credit research at UBS.Securitization of individual businesses is rare in Japan, and Softbank would be the first company to securitize the cash flow of a particular business arm for such a large sum.

Gaia Co. Ltd., Japan's third-largest operator of pachinko pinball parlors, last December raised a much smaller 70 billion yen through securitization of its cash flow for 31 pachinko halls.Softbank also said on Tuesday it would issue straight bonds worth 500 million euros ($637.4 million) to mature in 2013 to pay back short-term loans.

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