UPDATE 3-Eyeing Sprint, Softbank in $23 bln loan talks - sources

* In talks with Mizuho, SMFG, MUFG for syndicated loan - sources

* Softbank shares down as much as 17 pct in Tokyo * Broker warns of "unacceptable" debt levels

(Adds U.S. market open, S&P action on Softbank)

By Taro Fuse and Mari Saito

TOKYO, Oct 12 (Reuters) - Japanese wireless service provider Softbank Corp is in talks with three major Japanese banks to borrow $23 billion (1.8 trillion yen) to finance a bid for U.S. operator Sprint Nextel Corp , sources with direct knowledge of the matter told Reuters on Friday.

Softbank has been looking at how to break into the U.S. market for months, eyeing growth beyond its stagnating home market, according to a person with knowledge of its planning. But one brokerage warned that a deal of this size could leave Softbank with "unacceptably high" levels of debt.

Sprint, whose market value jumped by $2 billion to around $17 billion on news of its talks with Softbank - confirmed by both companies - has net debt of about $15 billion, while Softbank has net debt of about $10 billion.

Adding the $2 billion net debt of smaller rival eAccess Ltd , which Softbank recently agreed to buy, would raise the new company's "post-deal gearing levels to unacceptable heights," Societe Generale said in a client note. "This deal simply appears to be driven by Masayoshi Son's belief that Sprint Nextel is too cheap, and little more."

Son, 55, and ranked by Forbes as Japan's second-richest man, has built Softbank from a small packaged software vendor in the early 1980s to a telecoms-centered group worth more than $40 billion through a series of risky acquisitions.

Buying about 70 percent of Sprint Nextel could be his riskiest yet.

Analysts said Son - a Japanese citizen of Korean heritage who went to high school and college in California - was likely taking advantage of both a strong yen and a shake-up in a U.S. wireless market dominated by AT&T and Verizon to make his move.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ GRAPHIC: Japan outbound M&A BREAKINGVIEWS: Tie-up gets bad market signal ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> TWO-STEP DEAL?

Softbank's ambitions may not stop with just Sprint, which might be looking to buy out its partner, wireless service provider Clearwire Corp . The Japanese company might use Sprint as a vehicle to buy smaller U.S. mobile provider MetroPCS Communications Inc , which this month agreed to merge with T-Mobile USA, part of Deutsche Telekom AG .

After sharp rallies on Thursday, both Sprint and Clearwire gave up some ground in early trading Friday. Sprint fell 2 percent to $5.64 and Clearwire dropped 1 percent to $2.20. MetroPCS was flat in the opening minutes.

A two-step deal to buy Sprint and MetroPCS could cost more than 2 trillion yen ($25.6 billion), Nikkei newspaper reported on Friday. It would be the biggest overseas acquisition by a Japanese firm ever and would vault Softbank into the top ranks of wireless carriers worldwide.

Such a deal would lift Japan's overseas M&A to a record $80 billion this year, easily beating last year's $69 billion, Thomson Reuters data showed.

But investors' biggest concern is how Softbank would finance such a big buy. Some analysts also queried the business logic of combining Japan's No. 2 wireless service with the No. 3 carrier in the United States.

"How Softbank will finance this deal, what this means for management structure and its finances, that's where the market is looking right now," said Mitsushige Akino, chief fund manager of Mitsuyoshi Asset Management.

The proposed bank syndicate in talks with Softbank includes Mizuho Financial Group Inc , Sumitomo Mitsui Financial Group and Mitsubishi UFJ Financial Group , said the sources, who asked not to be named as the talks are private.


Standard & Poor's put its "BBB" long-term rating on Softbank on credit watch with negative implications, saying the deal "may undermine Softbank's financial risk profile."

Investors dumped Softbank shares in Tokyo on Friday, pushing the stock down as much as 17 percent in its biggest one-day decline and knocking close to $7 billion off its market value.

"The strong yen is probably one of the reasons for Softbank to acquire overseas assets, but I don't think this deal will be good for Softbank," said Yasuo Sakuma, portfolio manager at Bayview Asset Management in Tokyo.

"For Sprint, this seems a must-do deal, while it's not for Softbank. The U.S. mobile telecom market is already mature," he said. "It's going to be very difficult to turn Sprint around."

By raising new equity directly - selling new shares to Softbank - Sprint would be able to shore up its balance sheet and fund other deals, such as buying out Clearwire, in which it already holds about a 48 percent stake, analysts said.

Sprint, which has been looking for new funding sources, has said it has enough money to last until at least mid-2013. It declined comment on Thursday and its chief financial officer pulled out of a conference presentation at the last minute without explanation.

Shares in eAccess dropped 15 percent on Friday as the market adjusted the value of the agreed Softbank share swap deal in the wake of Softbank's sharp slide.

($1 = 78.5100 Japanese yen)

(Additional reporting by Dominic Lau; Writing By Kevin Krolicki and Ben Berkowitz; Editing by Ian Geoghegan)




@BerkowitzRtrs)) Keywords: SPRINT SOFTBANK/