SoftBank is launching an emergency ¥4.5tn ($41bn) asset sale to fund a share buyback and debt reduction, in a determined effort by Masayoshi Son to stem a collapse in the company’s share price sparked by the coronavirus crisis.
Shares in the Japanese technology group soared almost 19 per cent on Monday after it unveiled the programme, which includes a plan to repurchase ¥2tn of its own shares on top of the ¥500bn buyback it promised 10 days ago. Combined, SoftBank would be repurchasing 45 per cent of its stock.
“This programme will be the largest share buyback and will result in the largest increase in cash balance in the history of SBG [SoftBank Group], reflecting the firm and unwavering confidence we have in our business,” Mr Son, the group’s founder and chief executive, said in a statement.
SoftBank did not disclose which assets it would sell over the next 12 months from its sprawling portfolio, but analysts are focusing on its $140bn stake in Chinese ecommerce group Alibaba.
The asset sale comes amid a tumultuous period for the Japanese conglomerate. On Monday the Financial Times reported that Leon Black’s Apollo Global Management hedge funds had placed a large short bet against bonds issued by SoftBank, a trade that Apollo had discussed with investors at a presentation in December, according to two people in attendance, citing concerns over SoftBank’s debt load.
Meanwhile, the conglomerate’s woes over its investment in lossmaking office space provider WeWork entered a newly acrimonious phase this week, as two of WeWork’s directors, Bruce Dunlevie and Lew Frankfort, publicly attacked the Japanese conglomerate over its attempts to renege on an agreed purchase of $3bn of WeWork’s stock.
“Not only is SoftBank obligated to consummate the tender offer as detailed by the master transaction agreement, but its excuses for not trying to close are inappropriate and dishonest,” the pair said on Sunday.
SoftBank’s new programme would represent about 17 per cent of the $245bn in assets SoftBank currently owns, which also includes US carrier Sprint and UK chip designer Arm.
Elliott Management, the $40bn US activist fund, recently built a $2.5bn stake in SoftBank, demanding a $20bn share buyback and greater transparency for the $100bn Vision Fund.
SoftBank’s share price has halved over the past month due to market concerns that the group, which is already saddled with net debt of $55bn, will face a bigger financial burden as its investments in ride-hailing and hotel groups are hit by the economic fallout of the coronavirus pandemic.
Among its other investments backed by its Vision Fund, Oyo Hotels, the Indian hospitality start-up, is reducing its workforce in China, while operating losses at London-based tech company Improbable Worlds jumped almost two-thirds in its latest financial year.
“We know that the Vision Fund could be dangerous but we don’t know where or how much,” said Kirk Boodry, a tech analyst at Redex Holdings who publishes on research platform Smartkarma. “When the bad things come out, people are now ready to have something to fall back on.”
SoftBank paired its share buyback announcement with a plan to pay down its debt, a move that came after credit-rating agency S&P Global recently cut its outlook on the company.
“The issue [for investors in SoftBank] was that they had the ability to sell assets in order to make a much stronger balance sheet and they just didn’t seem to want to do it until now,” said Mr Boodry.
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