SoftBank doubles with buyback after Vision Fund hit $ 10 billion

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SoftBank slumped to a quarterly loss on Monday when its Vision Fund unit posted a loss of $ 10 billion.

Even as the value of its assets plummets, the Japanese tech company said its stock is undervalued and will spend up to JPY 1 trillion (about Rs.65.297 billion) to buy back nearly 15 percent of its shares.

While CEO Masayoshi Son has compared SoftBank with a goose that lays “golden eggs”, Monday’s results underscore the headwinds for the investment business.

“We are in the middle of a snow storm,” Son said at a news conference, adding that he was “not proud” of the Vision Fund’s performance in the quarter. However, he said the company is taking steady steps to double the number of “golden eggs” from last year.

The group’s largest asset, Chinese e-commerce company Alibaba, lost around a third in value in the second quarter. Its share in the Chinese ridesharing service Didi, which was purchased for 12 billion rupees (approx. 88 897 billion rupees), was estimated at 7.5 billion US dollars (approx. 55,569 billion rupees).

Another notable hit was online retailer Coupang, which gave up a third of its value.

“The strategy of adding value to the perception of things being published didn’t really work this year,” said Kirk Boody, analyst with Redex Research.

Raw leverage

Son says the change in the value of the group’s assets, rather than profits, is the primary yardstick by which performance should be measured. Assets fell 23 percent in the three months to September to $ 187 billion (approximately Rs 13.85.221 billion).

While SoftBank shares trade at a discount of around 50 percent, less than a record gap that marked the introduction of a possible buyback of JPY 2.5 trillion (approx.

“I’m excited because we’re being devalued compared to our real strength,” said Son.

Investors are calling for a buyback to increase returns. Repurchased shares will be withdrawn, a move that lowers the bar for Son, SoftBank’s largest shareholder, to potentially start a management buyout.

“The buyback gives them gross leverage to affect the discount at which stocks trade,” Boody said, adding that the slower pace could reduce stock price volatility.

Future uptrend for the Vision Fund includes its India portfolio with ridesharing Ola and logistics company Delhivery targeting listings.

“The pipeline is very robust,” Navneet Govil, Vision Fund’s chief financial officer, told Reuters in an interview.

The planned listing of the Southeast Asian Ride-Hailers Grab via a merger with a special purpose vehicle (SPAC) will bring another valuation gain, said Govil.

The group’s net loss was JPY 398 billion (approximately Rs.25,988 billion) compared to a profit of JPY 628 billion (approximately Rs.41,006 billion) a year earlier. The Vision Fund’s investment loss was JPY 1.167 trillion (approximately Rs 76.208 billion).

SoftBank raised capital by reducing stakes in companies like rideshare Uber and grocery supplier DoorDash after the blackout periods expired.

The group has returned $ 9.8 billion (approximately Rs.72,611 billion) to investors and is focused on investing through its second Vision Fund, which has $ 40 billion (approximately Rs.296,372 billion) in tied capital from SoftBank and Son himself has.

The second fund had invested $ 33.5 billion (approximately Rs.296.372 billion) in 157 startups at the end of the quarter. Eight of these companies are already listed.

SoftBank shares, which have lost about a quarter this year, closed 0.77 percent on Monday at JPY 6,161 (about Rs 4,000) ahead of gains.

© Thomson Reuters 2021

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