Masayoshi Son wealth: SoftBank founder Masayoshi Son loses $25 billion in brutal tech winter

Masayoshi Son, the billionaire founder of SoftBank Group Corp., checks the chart. Then again. Again. And again for good measure.

Lately, it’s only been moved in one direction: up.

This is not a chart of the company’s stock picks. These sink quickly. The same goes for Son’s fortune – at $13.7 billion, it fell from $25 billion last year, according to the Bloomberg Billionaires Index.

The chart is SoftBank’s loan-to-value ratio, which Son says he checks four times a day. It’s key to how he’s staged his comeback over the past two decades after losing $70 billion in the dot-com crash.

Just last year, SoftBank was flying high, borrowing against its hugely lucrative stakes in tech investments such as Alibaba Group Holding Ltd. and investing the money in the promising newcomers of tomorrow. Even when there have been epic failures – Wirecard AG or Greensill Capital – profits elsewhere have buried the problem.

However, lately the problems keep piling up.

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From China’s tech crackdown to Russia’s invasion of Ukraine, from inflation to markets, a litany of problems have beset Son and his conglomerate.

The stock has fallen nearly 60% over the past year and the loan-to-value graph that Son obsesses daily continues to rise, indicating that SoftBank’s net debt is becoming heavy relative to the value of equity of its assets. Some market watchers point to the risk of margin calls.

“There is no good news in sight,” said Tomoaki Kawasaki, principal analyst at Iwai Cosmo Securities Co. financial issues facing the business.”

Son, 64, acknowledges that these are difficult times.

In February, he described SoftBank as being “in the midst of a winter storm” and announced a drop from 1.55 trillion yen ($13 billion) to 19.3 trillion yen in net asset value. the company for the three months until December.

Since then, it has only gotten worse.

The market for new stock sales, critical to SoftBank’s success, has dried up. Didi Global Inc. sank a record 44% on Friday after the ride-sharing company suspended preparations for a Hong Kong listing. In the latest sign that SoftBank is running out of money, its Vision Fund sold $1 billion worth of shares in South Korean e-commerce giant Coupang Inc. at a discount last week.

“SoftBank’s investment macro picture and listing outlook is not good,” said Amir Anvarzadeh, strategist for Japanese equities at Asymmetric Advisors, who recommends betting against the stock. Declines in the value of its investments, such as Alibaba, expose the company to the risk of margin calls, he added.

Son told investors how he checks SoftBank’s loan-to-value ratio, or LTV, several times a day. The measure, calculated by dividing its net debt by the equity value of its holdings, rose to 22% at the end of last year from 8.8% in June 2020.

soft bankBloomberg

The conglomerate aims to keep the ratio below 25%. But an increase in borrowing, as well as declines in Alibaba and SoftBank shares, have pushed it even higher this year.

S&P Global Ratings, which unlike SoftBank includes margin loans in its LTV calculation, estimated the ratio at 29% in a March 7 call, according to Bloomberg Intelligence senior credit analyst Sharon Chen. . If it exceeds 40%, it could trigger a potential downgrade of the current BB+ rating.

The Japanese company depends on financing to maintain its pace of investment and support its share buyback program. It will need $45 billion in cash this year, Jefferies analyst Atul Goyal predicted last month, adding that it will likely sell shares of Alibaba to meet the demands.

SoftBank has long relied on asset-backed financing, which is cheaper than other forms of financing. This includes pledging assets in exchange for cash to invest in early-stage startups and using prepaid futures — where SoftBank receives cash up front for a future sale of its holdings.

In December, he had pledged more than half of his stakes in Alibaba, T-Mobile US Inc., Deutsche Telekom AG and its telecommunications unit SoftBank Corp. Asset-backed financing accounts for $54 billion of the conglomerate’s $128 billion in total debt, according to a BI analysis.

“They need to keep fundraising, and the complexity of how they do it is probably what makes people less comfortable,” BI’s Chen said.

Son’s funding network goes beyond the main business.

Son has some of the largest equity-linked personal loans in the company on the planet after pledging shares worth $5.7 billion to 18 lenders, including Bank Julius Baer & Co., Mizuho Bank Ltd. and Daiwa Securities Group Inc.

A SoftBank representative said the company does not comment on Son’s personal finances.

The conglomerate also provides loans to certain executives as part of its incentive program, with the aim of buying shares in the company, the spokesperson said.

To help fund a stake in T-Mobile, SoftBank loaned $515 million to Marcelo Claure, the former chief operating officer who quit in January over a dispute with Son.

SoftBank may tap into multiple types of funding, but it’s still primarily a technology investment company, and Son has made a string of extremely profitable bets.

Last year, it posted the biggest quarterly profit ever for a Japanese company and its stock hit a record high. Listings of Coupang and delivery platform DoorDash Inc. helped offset losses at WeWork, Greensill Capital and Wirecard – the latter two flopped amid fraud scandals.

But it will be more difficult for Son to reap the gains. Alibaba, SoftBank’s biggest investment, has lost 35% this year, while SoftBank itself is down for a fourth day, heading for its lowest price since April 2020. All but three of the 23 stocks backed by conglomerates listed in 2021 have fallen below their IPO prices and the cost of insuring the company’s debt against default has more than doubled.

Softbank2Bloomberg

Despite the series of bad news, 18 of the 20 analysts whose ratings are monitored by Bloomberg recommend buying the stock. While the challenging environment makes it harder to predict the timing of the buyout plan and investments in the second Vision Fund, “we don’t see a crisis per se,” said Kirk Boodry, an analyst at Redex Research who does not assess not stocks. .

“There is some cushion there, despite the poor performance of the portfolio over the last three quarters,” he said.

SoftBank is not changing strategy. After repaying $10 billion in loans backed by Alibaba shares, it arranged $6 billion in new debt in December. Last month, he asked banks vying for roles in chip designer Arm Ltd’s potential slate. to provide it with $8 billion in funding, people familiar with the matter said.

Moreover, Son remains optimistic about the upcoming end of winter.

“We will see a spring sooner or later, and we continue to sow seeds,” he said in February. “Regularly, the seeds grow.”

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