9984 - Softbank

[Guest ajc]

 

SoftBank lines up bankers for record IPO of mobile unit

https://www.ft.com/content/61bb1bfa-ce28-11e8-b276-b9069bde0956

 

"According to people close to all three investment banks, the technology conglomerate led by Masayoshi Son is planning to complete the sale of between Y2.3tn and Y2.8tn ($20bn to $25bn) worth of shares in SoftBank’s mobile business by late December.

The majority of the issue is expected to be pitched at domestic investors."

 

 

 

[thowed]

Saudi risk?

https://www.bloomberg.com/news/articles/2018-10-15/softbank-s-son-saudi-s-prince-and-a-22-billion-test-of-values?srnd=markets-vp

[Guest ajc]

 

 

Saudi risk?

 

https://www.bloomberg.com/news/articles/2018-10-15/softbank-s-son-saudi-s-prince-and-a-22-billion-test-of-values?srnd=markets-vp

 

 

 

Yeah, my own thinking is a potential collapse of the Sprint/T-Mobile merger is a bigger valuation risk.

 

I don't think the current administration wants to pick a full-blown fight with the Saudi's. There's too much riding on their co-operation from Israel-Palestine, to Syria, to Iran, to ISIS, to oil prices. Maybe some high profile individuals could be sanctioned to start, but I'm not sure an overwhelming majority of US citizens would want some big blow-up if they understood what Saudi support means in the region. Better the lesser devil you know, is what I'd say the sensible view is from those in Washington.

 

If that doesn't happen, I think it'd be possible for Softbank to announce they'd take no more Saudi money and cash them out from the Vision Fund as soon as IPO's happen or big buyers can be found. The big solar deal in Saudi would be dead, but that's a small part of the current valuation thesis. Either way, I think Softbank could restructure their current commitments around any future US political moves.

 

As far as the upcoming Softbank IPO goes, I saw a report they'd be looking for a $90B market cap (https://www.livemint.com/Money/HgosgGJ7c2wJKwXRqilAZN/SoftBank-weighs-the-largest-public-listing-ever.html). After running some rough numbers, I figured that $75B or so was fairer given how KDDI and NTT are valued but that'd still be fine.

 

At current prices, that values their 75% ARM Holdings stake (worth $24B), their 80% Sprint stake (worth $20B), their 48% Yahoo Japan stake (worth $8B), the Vision Fund (call it a zero to be super conservative from an overall sum-of-the-parts perspective), and their 28% Alibaba stake (worth $105B) at less than $25B in total.

Even if you apply a 20% holding company discount while counting the Vision Fund as a zero, you're easily getting more than $100B worth of assets for $25B.

 

Seems like a decent margin of safety and relatively egregious mispricing.

 

 

 

[Guest ajc]

 

Uber proposals value the company at $120 billion in a possible IPO: WSJ

At a $120B IPO price (https://www.cnbc.com/2018/10/16/uber-proposals-value-the-company-at-120-billion-in-a-possible-ipo-wsj.html), the Vision Fund would earn more than 2x on its 2017 bet.

 

They bought the Uber stake less than a year ago for $9.3B at a $54B blended valuation (http://fortune.com/2018/01/19/softbank-uber-statement-kalanick/).

 

 

 

[UK]

https://www.wsj.com/articles/softbank-to-lend-founder-and-employees-billions-to-invest-in-fund-11566051247

 

Unusual setup doubly exposes the Japanese company to a startup economy that is starting to show cracks

[Spekulatius]

One concern is that ARM is not doing well (value ~ 10- of their market cap). Their revenue growth has stalled  stalled and their earnings have shrunk dramatically. I think it may be worth far less than what they paid for. Also, they seemed to have segregated their Chinese business in a separate company. I guess that means that they can welcome the CCP to their management team.

 

However, with a LTV of 19%, they should be OK, as long as Alibaba does OK.

[UK]

https://www.wsj.com/articles/what-drove-softbanks-vision-fund-up-is-dragging-it-down-11569243411

 

By financing much of its assets with what is essentially debt, the Vision Fund has increased its risk. Roughly 40% of the Vision Fund’s capital—$40 billion—is in the form of preferred stock, which promises a return of 7% a year, just like debt. It is unusual for a fund to include preferred shares. SoftBank has retained proceeds from asset sales to ensure it can pay the coupon.

 

Already, some of SoftBank’s plans for extracting cash to pay the Vision Fund’s investors are starting to look overly optimistic. SoftBank Chief Executive Masayoshi Son —the mastermind behind the fund—said he is counting on five or six IPOs from its portfolio during the fiscal year ending March 2020, and another 10 the following year. But many of the Vision Fund’s companies are still burning through cash and losing money, something that the public markets may not view favorably, as We’s attempt to list has shown.

 

The fund can borrow more if it needs to generate cash quickly. In August, it said it had secured an unusual three-year loan facility, backed by its shares in Uber and Guardant. The loan lets it borrow up to $4 billion to return cash to its investors. Having some form of leverage isn’t unusual for a large fund, but it isn’t common practice to use stakes in public companies as collateral on loans.

 

If the fund had invested when markets were cheap, it might have benefited from a rebound. Instead, in the 11th year of the longest bull market in history, the fund said it has invested close to $85 billion of the nearly $100 billion it raised in 2017. Three of those investments— Uber, We and Didi—account for nearly 30% of the Vision Fund’s portfolio by value, estimates research firm Astris Advisory.

 

SoftBank’s $33 billion stake in the fund, which accounts for more than half of the equity in the fund, also relies on borrowed money. SoftBank itself has more than $160 billion in debt, and the company extended about $8 billion in loans to Vision Fund employees to invest in the fund, the Journal reported.

[Spekulatius]

Yes, Softbank looks very iffy. It looks like they will get bailed out with Sprint, but I also think that SRM Semi might end up being a poor investment, based on the recent results.

 

With all that debt, Softbank could end up being the Lehman of the engt crisis. It won’t end up destroying the financial system, but it could severely impair startup economy, especially the many company now that scale to size while using tons of money. When the public IPO exit door would closed, there could be a lot soul searching for these institutional investors on what to do and how to value their holdings.

[thepupil]

I'm confused. Softbank appears to have very little holdco debt relative to its assets.

 

they own $120 billion of BABA. It would take an impairment in that to bring the ship down.

 

Softbank looks super liquid and low leverage to me, and has extremely low cost debt.

 

I don't have an opinion on the stock, but investing poorly through the vision fund does not translate to insolvency.

 

They own $120 billion of BABA shares, which trade $3.5 billion a day.

 

https://cdn.group.softbank/en/corp/set/data/irinfo/presentations/analyst/pdf/2019/investor_20190809_finance.pdf

 

 

Said another way, Softbank trades for $88 billion and claims $196 billion of NAV (42% of assets BABA, 18% of assets TelCo, 13.5% Vision Fund, 10% ARM, + a little bit of "other"). There is $108 billion (50%+) discount to NAV. Isn't the market already writing off a lot here?

[Jurgis]

@thepupil: I think a lot hinges on the Vision Fund preferred shares payout. It seems that Softbank is on the hook to pay Vision Fund pref holders 7% annually irrespective of Vision Fund actual return. Which might be an issue if/when Vision fund does not return 7% (what if it returns -20%?). I don't know all the legalities of this and how Softbank has to cover this and can they refuse to pay without hurting Softbank itself. IMO though, any Softbank analysis has to understand the Vision Fund pref situation in depth.

[mwtorock]

@thepupil: I think a lot hinges on the Vision Fund preferred shares payout. It seems that Softbank is on the hook to pay Vision Fund pref holders 7% annually irrespective of Vision Fund actual return. Which might be an issue if/when Vision fund does not return 7% (what if it returns -20%?). I don't know all the legalities of this and how Softbank has to cover this and can they refuse to pay without hurting Softbank itself. IMO though, any Softbank analysis has to understand the Vision Fund pref situation in depth.

 

Barron's on the past weekend had an article about this too. The market is effectively valuing Vision Fund at -50B.

[Jurgis]

@thepupil: I think a lot hinges on the Vision Fund preferred shares payout. It seems that Softbank is on the hook to pay Vision Fund pref holders 7% annually irrespective of Vision Fund actual return. Which might be an issue if/when Vision fund does not return 7% (what if it returns -20%?). I don't know all the legalities of this and how Softbank has to cover this and can they refuse to pay without hurting Softbank itself. IMO though, any Softbank analysis has to understand the Vision Fund pref situation in depth.

 

Barron's on the past weekend had an article about this too. The market is effectively valuing Vision Fund at -50B.

 

I read Barron's article. I don't think it covered the Vision Fund pref issue. Although I cannot access the WSJ article UK has posted, the excerpt seems to cover the problems with prefs more than Barron's did.

 

I am not denying that SOPT looks good. And I don't have a number to put on as Vision pref negative SOPT adjustment.  ::)

[SharperDingaan]

Softbank needs the Unicorn bubble to hold up; few think that's going to happen, hence the 110B cut to NAV.

If anything, the .com implosion evidenced that tech bubble corrections overshoot by quite a bit. Hence, when anything to do with unicorns becomes radioactive - it's hard to see how Softbank doesn't drop at least another 40-60% percent from current levels.

 

However, the .com implosion also evidenced that there is real value-add in these bubbles - it's just not very much, and very scattered.

A Softbank is more likely to get consolidated, versus liquidated; and recapitalized from the 'funny money', made on the way down. A thrill-seeking ride, but perhaps not for everyone.

 

SD

[thepupil]

https://www.ft.com/content/b6fe313a-4add-11e7-a3f4-c742b9791d43

 

This article says that the Vision Fund's external investor invested through a combination of preferred and common, whereas Softbank Group invested solely through common equity.

 

This would increase the probability that Softbank Group experiences severe writedowns in its common interest in the Vision Fund and also somewhat cushion Saudi et al from writedowns to a certain degree. From my reading it does not encumber Softbank Group with a liability, it simply makes Softbank's interest int he Vision Fund (13% of assets or whatever, according to the presentation) more levered.

 

I view this as risk reducing smart financing on the part of Softbank that scales the size of the fund and limits their dollars they ahve to risk.

 

 

I'm only really starting to dig into this, but I feel like this will start to become assymetric with incremental moves down, continued indication of capital impairment in WeWork, etc.

 

[Spekulatius]

I would also add that BABA itself is a black box with enough yellow flags to make me stay away as far as possible . The complexity of their balance sheet  is mindboggling. Now with Jack Ma gone and the party having a good say and what is happening, I don’t think it can be valued easily. It’s not like Mr. Market has never been wrong on Chinese companies before.

[UK]

https://www.wsj.com/articles/softbank-backed-real-estate-broker-compass-hit-by-high-level-exits-11569439433

 

“Generally speaking, people join these companies in large part for the wealth creation that an IPO brings,” said Jack Micenko, a senior analyst at trading and tech firm Susquehanna International Group. “To the extent that anyone in a senior position at one of these startups leaves prior to an IPO, [it] is somewhat unusual.”

 

The startup has a valuation of more than $6.4 billion, or about nine times the size of the market capitalization of Realogy, a publicly traded company that owns the brokers Corcoran Group and Sotheby’s International Realty among other real estate brands. Like We, Compass has sought to make a case that it is more of a tech startup than a real-estate company. The residential broker has long said it would develop an “end-to-end” technology platform to facilitate real-estate transactions, handling everything from searching for a property to securing title and home insurance. At one point, Compass touted its plans for an interactive sale sign illuminated by LED to make it visible on lawns at night. “Compass is just Realogy with better branding,” said Mike DelPrete, a scholar in residence on real-estate technology at the University of Colorado Boulder.

 

Mr. Rein has said that near-term profitability isn’t a priority. “Investors now have an incredible long-term view—20, 30, 40 years…They’re saying, ‘Who can build something that people love?’” he said in an April interview with The Wall Street Journal. In that same interview, Ms. Gavet said the company didn’t have a clear strategy to monetize the business. “We just know that there’s definitely going to be a business model behind these things given how much money is in this industry,” she said.

[UK]

https://stratechery.com/2019/neither-and-new-lessons-from-uber-and-vision-fund/

[Guest cherzeca]

couple vignettes:

 

1. from 10/31 WSJ. "Flying over Europe in a private jet last year, Rajeev Misra [head of VF] took his shoes off and propped his bare feet on the knee of a top executive of FIFA, soccer’s governing body. The executive froze while Mr. Misra, head of SoftBank Group Corp. 9984 3.71% ’s $100 billion Vision Fund, chatted about ways to make more money off the streaming rights for the organization’s tournaments."

 

misra is an ex-banker.  anybody who has worked at an investment bank or biglaw firm knows this is a dominance game played by midlevel bankers and lawyers...you come to a colleague's office, sit in chair opposite desk, put your feet up on his desk, and chat.  you would never do this to a senior or mentor, though they might do it to you, but you would do it to someone just above or below you, as if in peacock display.

 

that Misra would do a bare feet on leg dominance display to a top executive shows to me the guy is out of his friggin mind.

 

2.  someone I know who covers the public RE brokers was asked to give a talk to VF individuals who, as it was represented, were responsible for VF investment in Compass.  long story short, the VF individuals had no clue what they were doing or what the prospects for large RE brokerages were.  talk to the hand, in essence

[thepupil]

Softbank is up 8% or so year to date and about 20% from its October 2019 1 year low, but there have been some interesting developments lately

 

1) Elliott bought $2.5 billion of the shares (neutral to positive, not a negative)

 

http://thejewishvoice.com/2020/02/paul-singers-nyc-hedge-fund-collects-3b-stake-in-softbank/

https://www.wsj.com/articles/elliott-push-at-softbank-reflects-rise-of-shareholder-activism-in-japan-11581341934

https://www.barrons.com/articles/elliott-managements-plan-to-fix-softbank-51581120898

https://www.ft.com/content/236917e0-4973-11ea-aeb3-955839e06441

 

2) Sprint / T-Mobile Approved; given that 9984 owns 83% of Sprint and the stock is up 70% or whatever, this is clear positive.

 

The quantum of the above two developments may be overshadowed by coronavirus and its impact on the most important holding, Alibaba, though BABA / 9988 have been remarkably resilient.

 

Still $100 billion market cap for $200 billion+ of risk assets with angry Elliott in the mix and the leading e-commerce company in China is pretty enticing.

 

might buy a little, tail hedged of BABA (ie buy $100 of Softbank and for every $100 buy $100 notional of 30% OTM long term puts on BABA for like $5-$6

[plato1976]

Does anyone have the latest NAV details on softbank , esp. after the recent plunge of uber, wework, etc. ?  they can be wiped out in the vision fund

 

Softbank is up 8% or so year to date and about 20% from its October 2019 1 year low, but there have been some interesting developments lately

 

1) Elliott bought $2.5 billion of the shares (neutral to positive, not a negative)

 

http://thejewishvoice.com/2020/02/paul-singers-nyc-hedge-fund-collects-3b-stake-in-softbank/

https://www.wsj.com/articles/elliott-push-at-softbank-reflects-rise-of-shareholder-activism-in-japan-11581341934

https://www.barrons.com/articles/elliott-managements-plan-to-fix-softbank-51581120898

https://www.ft.com/content/236917e0-4973-11ea-aeb3-955839e06441

 

2) Sprint / T-Mobile Approved; given that 9984 owns 83% of Sprint and the stock is up 70% or whatever, this is clear positive.

 

The quantum of the above two developments may be overshadowed by coronavirus and its impact on the most important holding, Alibaba, though BABA / 9988 have been remarkably resilient.

 

Still $100 billion market cap for $200 billion+ of risk assets with angry Elliott in the mix and the leading e-commerce company in China is pretty enticing.

 

might buy a little, tail hedged of BABA (ie buy $100 of Softbank and for every $100 buy $100 notional of 30% OTM long term puts on BABA for like $5-$6

[Xerxes]

I recall reading somewhere that SoftBank maintains updated NAV on its website.

 

I was once, some years back, under the voodoo magic of Masa Son. I did manage to sell the whole lot with a 40% gain a week prior to Uber IPO. What broke the magic for me was WeWork. I was ok and still am ok with Uber.

 

I really had a hard time to square that WeWork thing with the conservative view Brookfield had when it came to real asset investments. And btw I am non expert when it comes to real estate (my background is in Aerospace). . Just the optics looked really weird to me between the two.

 

I think SoftBank deserves permanent discount to NAV.

[Xerxes]

there it is

 

https://group.softbank/en/ir/stock/sotp

 

where they maintain a live version of discount to NAV

[A Dhandho Investor]

https://www.bloomberg.com/news/articles/2020-06-14/softbank-invested-in-credit-suisse-funds-financing-its-bets-ft#:~:text=SoftBank%20poured%20money%20into%20more,as%20well%20as%20marketing%20documents.

 

SoftBank poured money into more than $500 million in Credit Suisse investment funds that in turn invested in debt of the startups backed by the Japanese company’s Vision Fund, the Financial Times reported, citing three people familiar with the matter as well as marketing documents.

 

If only there was a name for this kind of scheme  ::)

[fareastwarriors]

Nvidia nears deal to buy chip designer Arm for more than $40 billion, sources say

 

https://www.reuters.com/article/businessNews/idUSKBN2630UE

[ValueMaven]

Lots going on here right now ... stupid massive option trade ... but it looks like they might sell ARM for $40b.  Still deeply discounted to NAV.  Thoughts?