SoftBank, SoftBank Drops 17% on Tech Bet Doubts

SoftBank Drops 17% on Tech Bet Doubts

Shares of Japanese investment conglomerate SoftBank Group Corp. ended Thursday’s session with a 17% loss to record its largest one-day drop, as investors’ expressed uncertainty over the outlook for technology bets, like office-sharing firm WeWork and ride-hailing group Uber Technologies Inc.

The company registered the second-highest decline in the Nikkei 225 index as it plummeted below ¥3,000 to close at ¥2,687. The fall was far sharper than the Nikkei’s 1.04% slump.  

Chief equity strategist Shingo Ide said the fall was mostly due to WeWork’s ongoing issues. And Uber’s biggest intraday loss since May 2019 of 21.6% hit on Wednesday.

The two US companies are part of the technology giant’s Vision Fund investment vehicle. And their issues weighed on its shares by 20% at one point on Thursday.

The ride hailer is set to host a teleconference later in the day. While the Tokyo-based company is reconsidering its plan to acquire $3 billion worth of shares from WeWork.

The Japanese firm’s market cap slipped below ¥7 trillion ($63.8 billion) for the first time in 3 years. A negative rating outlook released on Tuesday by the S&P Global Ratings also contributed to the stumble in shares.

The selling is coming from foreign investors who are concerned about overleveraged companies, according to analyst Tomoichiro Kubota.  

Debt Pile and Investments Put SoftBank’s Stability in Question

The shares of SoftBank were down to their lowest since its initial public offering (IPO) in 1994.

Chief Executive Masayoshi Son is making every effort to reassure investors about the stability of his company amid the ongoing coronavirus pandemic, which has hit stock prices. And led to the worst sell-off in credit markets since the 2008 financial crisis.

The virus has also triggered a significant increase in the cost of insuring against defaults across the globe, including the Japanese technology investor’s. 

Chief investment officer Makoto Kikuchi stated that it cannot be denied the possibility that massive paper losses at the group could lead to its liabilities exceeding assets. Then the company will not only be heavily in debt. But it would also find further borrowing more difficult, he added.

Institutional investors are worried that SoftBank’s investments may have lost 30% seeing the drop in the Nasdaq index, according to Kikuchi.

Son has argued that he has more than enough assets to cover debts. Which includes stakes in Chinese online retail behemoth Alibaba Group Holding Ltd., Japanese software designer Arm Holdings Plc, and its domestic telecom arm SoftBank Corp.

The CEO also looks to keep its loan-to-value ratio below 25%. S&P stated that the gauge is expected to be around 30% to 35% in the coming year or so.

Kikuchi said megabanks will no longer be able to lend as they have before, if its credit ratings fall one notch, making fundraising even riskier. In addition to its own financing problems, the startups it invested in will have a hard time borrowing too.

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