Take, for instance, the largest global stock market selloff in more than a decade. The software retailer-cum-telecom operator was reoriented by founder and chairman Masayoshi Son six years ago to become a publicly traded venture capital fund. Phone firms were formerly seen to be a terrific investment during a recession, but the main strategy of his SoftBank Vision Fund has been to rely on a continual stream of share listings.
In addition to public equity markets, the fund had also been able to profit handsomely from portfolio company revaluations as they received new rounds of funding.
Source: Yahoo Finance
Son’s empire needs money for a variety of reasons. First, regardless of the performance of the portfolio, he immediately obligated the Vision Fund to make 7% annual payments on $40 billion of preferred equity. Even though investors have subsequently received more than half of that prioritised funds, the fund is still responsible for paying cash distributions regardless of what happens. As a result, before any money can be transferred to SoftBank set, it must first be distributed to this unique set of shareholders.
The remaining debt owed by SoftBank is the next. It was 31.7 trillion yen at the end of December, which is equivalent to $235 billion at the current currency rate. The fact that SoftBank managed to pay off 5 trillion yen during the nine months leading up to December 31 while still returning to the market to raise 6.5 trillion yen is particularly telling. Less than one-eighth of that is interest-bearing liabilities due within a year. The majority of this was obtained by utilising securities from ARM Holdings Ltd. and Alibaba as collateral.
The value of SoftBank’s unencumbered interest in Alibaba decreased from just over $50 billion at the end of 2021 to roughly $16 billion at the end of December 2022. By unencumbered, we mean not committed for loans or forward contracts. The basic fact is that SoftBank is exiting Alibaba, even if a significant portion of that decline was brought on by a 25% decline in share price last year. According to estimates from Bloomberg Opinion, its free and clear stake is currently probably in the single digits.
Source: Yahoo Finance
Beyond paying off debt and seeking for new business opportunities, SoftBank is repurchasing shares to support its stock. That seems to be effective. The shares increased by 15% during the December quarter, the greatest return in two years, thanks to a $4 billion wave of repurchasing. But when Alibaba’s shareholding is completely gone, the real battle will begin. Investors can find solace in the news that SoftBank is preparing to relist semiconductor company ARM internationally. Son will undoubtedly take advantage of this opportunity frequently.
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