SoftBank Returns to Familiar Strategy After Portfolio Losses

Masayoshi Son stated that SoftBank Group Corp. is going to buy back its stock up to 1 trillion Yuan ($8.8billion). This follows a drop in portfolio company value, which led the Vision Fund Investment Unit to lose record amounts.

Tokyo-based Son announced Monday that it will repurchase as much stock as 14.6% and then retire shares under a one year program. Son said that if the buyback isn’t completed in the next year, it could be extended.

“We had a heated discussion at the board meeting. We decided now is the time to buy back shares,” Son said at an investor presentation after the earnings announcement. “I am so excited, because I am a shareholder.”
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The SoftBank founder is returning to a familiar strategy after an unprecedented 2.5 trillion yen buyback program last year helped more than triple the company’s valuation from its pandemic low. The company’s shares have slid more than 40% from their peak in mid-March after the repurchase program ran out.

SoftBank’s stock has been struggling to keep up without buybacks. This is especially true as China crackdowns have impacted the valuations many of its portfolio companies. Its most valuable holding is Alibaba Group Holding Ltd., one of the primary targets of Beijing’s regulations. Also, it holds shares in Didi Global Inc. (a ride-hailing company that has also been subject to regulatory scrutiny).

Son said that SoftBank’s shares now trade at a 52% discount to the value of its holdings.

“With a discount this wide, I thought, what would make shareholders happy? A buyback,” he said.

This move will likely boost the company’s share price, and satisfy investors.

“We are pleasantly surprised, but our enthusiasm is slightly tempered by the conditions Son has put on it,” said Kirk Boodry, an analyst at Redex Research in Tokyo. “It is a sizable buyback, but saying that it might take more than a year indicates the pace will be a lot slower compared to their previous program.”

SoftBank’s Vision Fund unit suffered a huge loss due to a decrease in value of its public holdings including Didi and Coupang Inc. Investment arm suffered a loss in excess of 825 billion yen while overall, the company reported a 2nd quarter net loss of 397.9 million yen.

Son’s Vision Fund has been a volatile contributor of profit and loss since its creation in 2017. The unrealized loss on valuation of public companies totaled $17.7 billion in the latest quarter across SoftBank’s two Vision Funds. The loss was $6.7 billion attributable to Coupang.

Over the years many of the fund’s senior investors have left. According to the New York Times, Deep Nishar will be joining General Catalyst in January as a competitor investment firm.

“What happened to us? We are in the middle of a blizzard,” Son said at the briefing in Tokyo, flashing a slide of snow-covered tundra. “The SoftBank Vision Fund performance is not something I’m proud of.”

SoftBank’s portfolio of Chinese startups was particularly hard-hit after the country’s regulators launched an offensive against technology giants. Didi’s quarter-end debut was among the most significant U.S. sales in the last decade. Full Truck Alliance Co., an Uber-like trucking startup, was also down $1.2 billion.

KE Holdings Inc. lost $2.2 Billion in value. It operates the Beike website property service. SoftBank received a $5.1 billion unrealized profit from this little-known Chinese startup in August 2020 when it went public. Vision Fund profits soared to an all-time high in the quarter. Despite the fact that the company was not directly targeted, the stock of the company is now trading at or below the IPO prices.

“If you look at the Vision Fund’s performance so far this year, pretty much everything they brought to market so far has lost money since listing,” Boodry said. “That’s an incredibly poor track record. They have been behind a lot of overpriced IPOs.”

SoftBank said that they will be prudent with China investments and estimated that around 20% of Vision Fund investments would go in the region. The country has been the source of Son’s biggest successes, but the Beijing crackdown has raised concerns about the future.

Son has also considerably scaled down his controversial program of trading stocks and options, liquidating his entire stakes in Inc., Taiwan Semiconductor Manufacturing Co. and PayPal Holdings Inc. SoftBank held a total of $5 billion of “highly liquid listed stocks,” down from $13.6 billion at the end of the previous quarter.

Son claimed that he had lost around 150 billion yen personally in SB Northstar. The unit is used to trade public stocks. He added that the company is closing down.

Son had to answer questions regarding his investment in Northstar last fiscal year. Others pointed out potential concerns about corporate governance. Sources familiar with this matter stated that SoftBank was closing down the strategy. Most of the large stakes in listed firms are now no longer listed on SoftBank’s earnings, while today’s filing indicated that many of the more controversial bets on derivatives were also being wrapped up.

Son explained that SoftBank was losing money as a whole because his investments happened later. He added the loss hasn’t dissuaded him from continuing to make bets with his money, including personal investments in Vision Fund 2 and in the firm’s Latin American funds.

“I have lots of confidence,” he said. “I’m going to take risk again.”

—With assistance from Gearoid Reidy and Vlad Savov.


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