SoftBank Loses $26 Billion on Tech Investments Amid Selloff

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Japanese conglomerate goes on the defensive amid concerns about its debt levels

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The rough results at the Tokyo-based conglomerate come as investors throughout the globe are dealing with a dramatic pullback in tech stocks, particularly the young, high-growth companies that were a magnetic investment for investors until recently.

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Rising interest rates and other global concerns have caused investors to flee unprofitable companies with lofty valuations, causing pain well beyond SoftBank. The popular ARK Innovation exchange-traded fund, run by Cathie Wood, is down around 60% in the year to date, while numerous hedge funds have been taking month after month of losses.

“If you owned growth stocks this year, like we did,” Altimeter Capital founder Brad Gerstner tweeted Thursday, “you got your face ripped off.” The tech-focused hedge fund has been a major investor in pre-IPO startups in recent years, including in Uber Technologies Inc.

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and software company Snowflake Inc.

Mr. Son opened a video presentation to investors by defending SoftBank’s financial condition, saying the company’s debt levels were manageable, its cash holdings were sufficient to cover coming bond maturities and that it still had gains in its giant tech fund. The company boosted its cash holdings through borrowing and the sale of stock, he said, in an attempt to address concerns from investors about the company’s heavy debt load.

SoftBank reported an $13.2 billion loss for its overall fiscal year ended March 31, including gains in divisions beside its tech funds, marking its biggest-ever full-year loss, topping a previous record set two years ago. In a dour earnings presentation, Mr. Son also cited pressure from the Chinese crackdown on private businesses and rising interest rates.

Stinging the company were sourced investments in numerous startups in its $100 billion Vision Fund, the world’s largest private investment fund that was raised five years ago with the intent to seed a generation of new tech giants.

Among the biggest bad bets was Chinese ride-hailing company Didi Global Inc.,

which has faced regulatory pressure in Beijing. As of the end of the latest quarter, the Vision Fund had lost $9.7 billion of the $12.1 billion it invested in Didi, the company said.

There is more pain to come: SoftBank said its holdings in publicly listed Vision Fund companies fell by more than $13 billion since its fiscal year ended March 31.

Those include companies that once were giant hits for SoftBank. DoorDash Inc.

and South Korean e-retailer Coupang Inc.,

the two largest publicly traded holdings in the Vision Fund, both fell by more than 40% in the past six weeks.

In all, SoftBank said the Vision Fund has made just $3.1 billion on the $45.6 billion it invested in its publicly listed companies as of Wednesday’s stock market close, a slim return after five years in which the Nasdaq has nearly doubled.

The difficult year marked the second time in a half decade that Mr. Son was on the defensive, as he apologized to investors in 2019 after a disastrous investment in office space company WeWork Inc.

and other loss-heavy companies.

“We will be much more careful when we invest new money,” he said in a recorded video on SoftBank’s website Thursday, echoing his remarks nearly three years ago.

Mr. Son delivered results to investors with a slide deck made in his simplistic—and somewhat sensational—style. One slide set on a dark background with smoke rising read “The World in Chaos.”

He devoted much of the presentation to trying to reassure shareholders concerned about SoftBank’s debt levels, telling them that he is closely managing its debt and cash.

In recent months, the company borrowed nearly $6 billion tied to startup investments in its Vision Fund 2 division—an unusual move for a venture capital fund given the high risks involved—and raised additional money through financial instruments tied to its nearly 25% stake in Chinese e-commerce giant Alibaba Group Holding,

SoftBank’s shares fell 8% on Thursday in Tokyo trading, which ended before the release of the results. Thursday’s close of 4,491 was less than half the level from a year ago.

Another headache for Mr. Son is unwinding an arm called SB Northstar that was started in 2020 to invest in big publicly traded tech stocks. SoftBank said Thursday that Northstar lost a total of nearly $6 billion since its inception, and Mr. Son said the fund had mostly stopped operating.

The CEO contributed a part of Northstar’s capital and will personally take a hit of more than $2 billion, SoftBank said.

SoftBank’s fate is no longer linked so closely to Alibaba, which has been a source of funding for other investments.

As recently as September 2020, SoftBank’s Alibaba stake accounted for more than half of its total asset value. As of March 31, SoftBank’s nearly one-quarter stake in Alibaba accounted for just 22% of its net asset value. That makes it harder for SoftBank to borrow against that stake.

Mr. Son said he would focus on chip designer Arm, which is owned by SoftBank, as a way to make money without spending more cash. He said he expected demand for chips to continue growing. He also confirmed that Arm’s China operation has returned to normal after a dispute with a former CEO that at one point left the China operation without a corporate seal needed to do business.

SoftBank said in February that it planned a public offering of Arm shares by March 2023 after a deal to sell the unit to Nvidia Corp.

fell apart. Mr. Son said the offering could be delayed by three to six months if market conditions worsen.

“We put up an umbrella when it rains,” Mr. Son said. “We need to think flexibly, depending on the situation. But it is the time to strengthen our defense now.”

Write to Megumi Fujikawa at [email protected]

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Credit: www.Businesshala.com /

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