A few years ago, CEO of Japanese conglomerate SoftBank, Masayoshi Son, unveiled a 100 Billion dollar fund named the SoftBank Vision Fund 1. He had shared his plans of raising a new Vision Fund, every 2 to 3 years as investments in various tech startups, under this fund, seemed to be paying dividends. But, in light of the Q4FY20 collapse of share values of its unicorn portfolio companies like Uber, WeWork and OYO, amongst others, due to the ongoing global pandemic, the first Vision Fund could very well be the last one.
On Monday, SoftBank Group Corp. finally reported a stunning 1.9 Trillion Yen (₹1.4 Lakh Crore) loss, last fiscal. Specifically, its Q4 loss was recorded at a staggering 1.1 trillion yen (₹83,700 Crore) loss in failed investments and business missteps. The company also posted an overall operating loss of 1.36 trillion yen (₹98,551 Crore) in the fiscal year of 2019-20 alongside a net loss of 961.6 billion yen (₹72,832 Crore).
The Tokyo-based investment giant had shared these performance statistics, in 2 preliminary earnings statements, last month, alarming investors. Experts have asserted that this fiscal loss, after the write-down of current share prices of Uber Technologies Inc. and its affiliates, endorsed by the fund, is the worst performance that the company has had in its 39-year history.
These bleak figures released on the same day that SoftBank’s high-profile board member Jack Ma stepped down, 13 years after earning a chair. The exit of Ma, co-founder of Ali Baba, is indicative of SoftBank being further shunned by one of its largest portfolio companies. It was reported that his company might not pay a dividend this year to preserve cash.
Son’s increasingly risky bets, over the past few years, have also coincided with departures of SoftBank board’s most outspoken members. Shigenobu Nagamori, the founder of motor maker Nidec Corp., stepped down in 2017, while Fast Retailing Co. Chief Executive Officer Tadashi Yanai left last December.
In February, Paul Singer’s Elliott Management Corp. disclosed that is has built a stake of close to $3 billion in SoftBank. It recommended share buybacks and an increase the number of independent directors in a bid for greater transparency and oversight. Now, SoftBank group has announced the nomination of three new directors, in its latest report.
In their earnings presentation, CEO Son talked about the extent of impact the COVID-19 has had on the global tech space while comparing the pandemic to the great depression. He said tech start-ups were falling “in a valley of coronavirus”. Out of the 88 companies that the SoftBank Vision Fund 1 invested in, Son assumes that as many as 15 companies could go bankrupt, while 60 others could post average performance. Consequentially, Son’s Saudi-backed Vision Fund has gone from netting the SoftBank group an RoI of 62% of the fund, at the beginning of last fiscal, to an abysmal -6%, last quarter.
SoftBank reported losses from its own investments in satellite operator OneWeb, which filed for bankruptcy in March, this year. Last month, Oyo Hotels & Homes, in which SoftBank invested about $1.5 billion, put employees, under furlough, in countries outside its home market of India in a bid to financially survive through the pandemic. Additionally, Uber’s shares are trading about 28% below its IPO price.
The 64-year old billionaire believes that only 13 companies, in the fund’s portfolio, could end up being successful. British chipmaker Arm Holdings could be one among those 13 companies. In fact, Son considers Arm to be one of the important assets of his fund.
Son acknowledged that these performance figures demonstrate that it is unlikely that he’ll be able to draw outside investors for another Vision Fund, an initiative that he once proclaimed to be the future of SoftBank. But Son affirmed that the company will not stop investing into more tech start-ups using its own reserves, albeit more cautiously than in the past. The company currently expects no significant impact on telecommunication business, added Son.
Understandably, SoftBank has been actively trying to manage these outcomes since the second half of FY20. After WeWork’s mid-May effort to go public fell apart, SoftBank stepped in to organize a $9.5 billion bailout and put its own chief operating officer, Marcelo Claure, in charge of turning around the business. Earlier this year, SoftBank also scrapped one part of the agreement which required it to buy $3 billion of shares from existing shareholders which includes its former Chief Executive Officer Adam Neumann.
Earlier, in March, Son had responded to rising concerns regarding investments into SoftBank, by announcing two share buybacks, in rapid succession. The first 500 billion yen repurchase, announced in mid-March, had initially failed to lift SoftBank’s stock. So, when the shares plunged more than 30% over the next week, Son unveiled a 2 trillion yen follow-up, in March-end.
So far, SoftBank has already used roughly half of its first slated allotment of 500 billion yen. In a statement last Friday, the Company said that it had bought 250.6 billion yen of its own stock since March 13, under the initial re-purchase plan.
In a separate statement , the company said it plans to spend up to 500 billion yen more to buy back shares through next March. This decision is part of a broader plan to sell assets to raise as much as 4.5 trillion yen over the coming year to buy shares and slash debt.
Softbank is also reportedly selling part of its stake in T-Mobile through a secondary offering, which is likely to be underwritten by Goldman Sachs and Stanley Morgan. According to press, the deal will involve the conglomerate selling part of its stake to Deutsche Telekom, T-Mobile’s parent company.
Pressed for some view of the future during the tele-conference, Son said that he still thinks he could see a 20% internal rate of return on Vision Fund investments. Now is the worst possible time but in five or ten years, things may look different. He could even approach outside investors about future funds. “The situation is exceedingly difficult,” Son said. “Our unicorns have fallen into this sudden coronavirus ravine. But some of them will use this crisis to grow wings.”