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SoftBank suffers $54 billion bruise from China’s tech crackdown

“Our China risk is not so huge. It is within our control,” Masayoshi Son said Monday as SoftBank reported that its net assets lost the equivalent of about $54 billion in value in just three months, falling to the equivalent of $184 billion.

The Japanese technology investor’s quarterly earnings report marked its first head-on reckoning with the upheaval that has hit the technology industry in China this year. As the Communist government tightens its grip on internet companies, one of its biggest targets is e-commerce giant Alibaba Group Holding Ltd., in which SoftBank owns a nearly one-quarter stake.

“It is a time of severe trials for China’s high-tech stocks,” Mr. Son said at a Tokyo news conference. “We are right in the middle of a storm.”

Just over a year ago, the Alibaba holding represented nearly 60% of SoftBank’s net assets, but with Alibaba shares falling by half from their peak, the figure is now down to 28%.

The chief executive quickly pivoted to the bright side, saying there is only so much more damage the turmoil in China can do. He pointed to investment successes such as U.S. food-delivery company DoorDash Inc., which had an initial public offering last year.

And he said moves to cash out on investments, including a listing of shared-office company WeWork Inc., gave SoftBank room to make new bets and simultaneously buy back its own shares.

SoftBank shares rose more than 10% in early Tokyo trading Tuesday on the news that the company would spend up to about $8.8 billion over the next year to buy back up to 14.6% of its shares outstanding.

That follows a more than $20 billion buyback announced last year and completed in May of this year. But SoftBank’s shares are still down sharply for the year as investors fret about China exposure.

As he has done in the past, Mr. Son observed that SoftBank’s market capitalization, the total value of its shares outstanding, is only about half the net value of its assets, even after the Alibaba hit.

Fumio Matsumoto, chief strategist at Okasan Securities, said it would be hard to persuade SoftBank investors that the China situation would recover soon, so Mr. Son needed another way to boost confidence.

“By announcing share buybacks, he is sending a message that the current share price is undervalued and at a level attractive to longer-term investors,” Mr. Matsumoto said.

SoftBank was once known as the majority owner of Sprint Corp. in the U.S., but it gave up control of Sprint last year and has mostly completed a transition to being a technology investment company focused on its Vision Fund. Its first fund under that name raised about $100 billion, including from Saudi Arabian investors.

SoftBank is now investing through Vision Fund 2, funded with its own money. It said Monday it has increased its capital commitment to the fund to $51 billion from $40 billion as of Sept. 30.

Mr. Son walked a fine line when asked how he would invest his war chest in China. On the one hand, he said the country was a leader in artificial intelligence and he had just finished a Zoom meeting earlier in the day to plan for an investment in a Chinese startup.

On the other, he stressed that only about one in five Vision Fund dollars is tied up in China. “I am not worried because we are going to make investments with a smaller amount in healthy companies,” he said.

On Nov. 1, a privacy law that will curb data collection by technology companies went into effect in China, limiting one of the main competitive advantages of giants such as Alibaba.

Also affected is Chinese ride-hailing leader Didi Global Inc., in which the Vision Fund holds a stake. Didi shares fell 45% in the July-September quarter, leaving the fund with a stake that as of Nov. 5 was worth $4.2 billion less than it has put in.

SoftBank’s investments outside China have been doing better but are also exposed to stock-market gyrations.

Shares of one, South Korean e-commerce giant Coupang Inc., slumped after its initial public offering this year, in part because of unexpectedly large losses in the April-June quarter.

Coupang and Didi were the main reasons SoftBank recorded an investment loss at the Vision Fund equivalent to about $10 billion in the quarter ended Sept. 30.

Overall SoftBank posted a loss equivalent to $3.5 billion for the quarter. It was the first loss since the January-March quarter of 2020, when it recorded its worst result—a nearly $9 billion full-year loss—amid the pandemic. Then it recovered sharply as the pandemic turned out to be good for many tech companies’ profits.

Mr. Son said his main benchmark isn’t quarterly profit but the change in SoftBank’s net asset value each quarter. He acknowledged it made for volatility. “There are mountains, and there are valleys,” he said.

 

This story has been published from a wire agency feed without modifications to the text

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