SoftBank falls most in 7 years after virus erases Elliott gains

by BLOOMBERG/ pic by AFP

TOKYO • SoftBank Group Corp fell by its most in more than seven years, after worsening sentiment around the coronavirus outbreak and the value of its global portfolio stung Masayoshi Son’s investment group.

The shares fell 10% yesterday, marking their biggest decline since October 2012 and wiping out gains since Paul Singer’s Elliott Management Corp revealed a substantial stake in SoftBank.

The subsequent rally didn’t last and shares embarked on their downswing after SoftBank reported a second quarter of losses related to investments in struggling start-ups from WeWork to Oyo Hotels.

Now, all the gains have been wiped out by an Asian sell-off triggered by uncertainty around the epidemic.

SoftBank’s dramatic fall underscores a growing wariness around SoftBank’s and the Vision Fund’s holdings in start-ups that have enjoyed abundant liquidity in past years.

Son met with fund managers and financial institutions in New York City about a week ago, arguing that recent market declines were an opportunity to invest at discounted valuations.

But global economic uncertainty has strained fundraising and stoked worries that start-up valuations are stretched — particularly in sectors vulnerable to the coronavirus epidemic such as ride-hailing and travel.

“Without such easy funding, these companies are left with few choices,” Jefferies analysts Atul Goyal and Bolor Enkhbaatar wrote last week.

“Consider that some of the most prominent Softbank Group or VF1 investments are in this (shared economy) space. If this continues, these companies may face incrementally more” profit and debt pressure.

Market volatility is particularly challenging for SoftBank, which has portfolio companies looking to go public or get sold.

Its investments include a number of start-ups that are restructuring or scaling back plans: WeWork is still recovering from its failed IPO last year, while Oyo Hotels is cutting 5,000 jobs after its business in China crumbled.

Uber Technologies Inc is reducing operations and costs in search of profitability.

Still, SoftBank has previously appeared open to Elliott’s demands for more transparency and a significant stock buyback.

“It was a one-two punch of coronavirus fears and terrible earnings results,” said Justin Tang, head of Asian research at United First Partners in Singapore.

SoftBank posts a calculation on its website of what it estimates is the value of its stock, a figure that’s currently above ¥11,000 (RM453) per share.

“If Son really believes his stock is worth more than ¥10,000, then he should be buying at this very attractive discount.”