SoftBank writedown will cloud Son's way forward


By Liam Proud and Karen Kwok

(The opinions expressed are their own.)

LONDON, Dec 17 (Reuters Breakingviews) - SoftBank's Vision Fund is due a writedown. The Saudi Arabia-backed tech investor, with $97 billion at its disposal, reported a 27 percent gain on $28 billion of investments as of September. That success will reverse in 2019.

Those prices might make sense to Chief Executive Masayoshi Son, who touts his 300-year investment vision. But they look toppy through the lens of traditional venture-capital and private-equity methods, which SoftBank says it uses. The enterprise value of IWG, WeWork's listed competitor, is just below one times its 2019 sales, using Refinitiv estimates, making WeWork's multiple look stratospheric.

ARM's valuation is set to suffer from a recent tech selloff and a slowdown in sales of Apple's iPhones, which contain its chip designs. Shares in semiconductor rival Nvidia, in which the Vision Fund also owns a stake, fell more than 40 percent in the two months to Nov. 30. That has left Nvidia's enterprise value at about seven times estimated 2019 sales, using Refinitiv data. Even at a generous 50 percent premium, debt-free ARM would be worth about $24 billion using Bernstein's 2019 sales estimate, one-fifth less than SoftBank's acquisition price.

Venture funds take writedowns all the time. Yet SoftBank is unusually vulnerable. Its size means marking down holdings could create a domino effect. The Vision Fund is also using debt, which totalled about $5.6 billion in September, to help fund its activities. Its capital structure unusually also includes preferred instruments, amplifying losses for other investors and requiring it to make cash distributions.

Moreover, Son's partners, including Saudi and Emirati sovereign-wealth funds, might take fright at writedowns. Any losses risk undermining Son's investing logic, which includes the notion that huge investments in emerging tech stars in and of themselves improve the chances those companies become winners. Both providers and recipients of funds, as well as investment staff, could lose faith. That would slow Son's momentum and force him to think about the shorter term for a change.

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- U.S. shared office-space provider WeWork secured an additional $3 billion in funding from Japan's SoftBank, Reuters reported on Nov. 13, citing an investor presentation. The latest funding was in the form of a warrant, under which SoftBank will pay WeWork$1.5 billion on Jan. 15 and the remaining on April 15.

- Reuters reported on Nov. 9 that SoftBank's Vision Fund had hired Goldman Sachs and Mizuho to help it raise $4 billion of debt. The Japanese parent attributed borrowings of 636 billion yen ($5.6 billion) to the Vision Fund as of Sept. 30, 2018.

SoftBank filings

This article appears in: Politics , Stocks , Technology

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