Softbank is losing almost a quarter of its value

Tokyo In May, the founder of the Japanese investment group Softbank, Masayoshi Son, celebrated a record profit. “And I was so proud of the result and talked about a rainbow over the road,” said the 64-year-old CEO on Monday about the half-year results. “But only six months later we are now in a snow storm.”

Although the half-year balance sheet still showed a net profit of 363.6 billion yen, Son explained. “But it is actually a huge decline.” In the first half of 2020, Softbank took in almost six times as much on balance. It hit Son’s own measure of success, net asset value, even worse.

Put simply, Son understands this to mean the value of all shares that the company owns, minus the debts. But it is precisely this level of success that has plummeted by almost $ 60 billion to $ 187 billion in the past three months. “This is an important event for the shareholders,” admitted Son – especially since it questions his China strategy.

If the corona crisis caused a loss of value in 2020, this time it is the broad wave of regulations with which the Chinese government wants to tame internet companies, the real estate sector and private examination schools (“cramming schools”) at the same time. “I’m a little concerned about what’s going on there,” Son admitted on Monday. Because of all things his first big success as a global technology investor, the online retailer Alibaba, is now becoming the symbol of Softbank’s break-in.

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20 years ago, Son laid the foundation for Softbank’s global rise with an investment in the then unknown online retailer Alibaba. Because Alibaba grew into a giant in China and globally and took Softbank with it. Until a few months ago, Alibaba was Softbank’s most important asset.

Betting on Chinese AI startups

Since the establishment of the first Softbank Vision Fund in 2017, Son then increased the bets on Chinese start-ups that work with Artificial Intelligence (AI). But this is now taking its revenge with China’s official clean-up, which began last year with an attack on Alibaba – with serious consequences for Softbank’s balance sheet.

A year ago, Chinese firms made up 59 percent of Softbank’s net asset value. But since then, not only has Alibaba slumped massively and swept Softbank’s assets with it. Many of the Japanese’s other investment objects also lost value. And so by the end of September China’s share had dropped to just 28 percent.

On the one hand, Softbank benefited from the fact that the group had increasingly invested its money in other countries with the second Vision Fund and a Latin American fund. The first fund, which mainly sovereign wealth funds from the Gulf States and large corporations such as Apple had filled with almost 100 billion dollars in capital, bought into 92 mega start-ups such as the mobility service Uber.

The two other funds financed by Softbank itself invest much smaller amounts of money, but are spread more widely in 276 other start-ups. Therefore, the accumulated valuation gains of the funds decreased relatively little. On the other hand, as planned by Son, Softbank is silvering its investments through IPOs in order to reinvest the money on the way to becoming a major global financier of the AI ​​revolution. Son continues to call his funds “geese that lay golden eggs”.

Softbank partner IPOs shot up from two to 14

From the founding of the first Vision Fund in 2017 to 2020, the number of initial public offerings (IPOs) of Softbank partners has skyrocketed from two to 14. In the Softbanks financial year, which has been running since April, 18 IPOs and mergers with Spacs have already been recorded. Spac stands for Special Purpose Acquisition Company. These are listed shell companies that usually buy up start-ups and, so to speak, bring them to the stock exchange through the back door.

Softbank

The increasing regulation in the People’s Republic primarily affects technology stocks.

(Photo: Reuters)

A further 13 IPOs are also still being planned, assured Son. These include those of the Indian transport service provider Ola and the logistics company Delhivery. And the pipeline is filled with 3,000 other start-ups, promised the 64-year-old founder.
Even in China, Softbank continues to find what it is looking for. Three months ago he said that he would keep his hands off the Asian economic miracle until it was clear what China’s leadership wanted. But Son can’t be stopped. “I only spoke to a company from China this morning,” he said at his press conference.

The élan is the program for him. Son has got used to translating crises into opportunities since he miraculously survived the bursting of the dot-com bubble at the turn of the millennium. At that time, Softbank lost 97 percent of its value. “We’re still in a blizzard, but our sustainable investing ecosystem is working,” said Son this time. He even sees the first green seedlings for future giants in the snow.

Proven means: share buyback should end the crash of the share price

He also wants to use a proven means to end the crash of Softbank’s share price, which has lost around 40 percent of its value since a record high at the turn of the year: He wants to buy back shares for up to one trillion yen (7.6 billion euros). Even during the corona crisis, he caused Softbanks to turn around on the stock exchange.

Whether he can repeat history is still open. But Son has apparently not lost his sense of humor about straightening the course in China. Investors used to worry about China’s high stake in the portfolio, he said. Now it had fallen, he stated. From this point of view, one could say that the risk is now “at a manageable level”.

More: Softbank apparently wants to sell Parisian robot business to Germany

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