Checking in on SoftBank
Shall the sins of Credit Suisse be visited upon the Son?
Won’t somebody please think of Masayoshi Son?
As the tide goes out and we learn who has been mauled by sharks, SoftBank — perhaps the most totemic financial group of the waning zero-rates era — is bound to be on many financial-accident bingo cards.
Citi analysts say their clients have been “increasingly querying the investment performance of the SoftBank Vision Fund and the vulnerability of SoftBank Group to fundraising market changes” over the past fortnight, as banks flop on both side of the Atlantic.
Their takeaway: yeah it’s pretty bad. Mitsunobu Tsuruo and Tailai Qui write:
We think the uncertain credit situation is a pressing issue for SBG . . . SBG is now in a tough position, sandwiched between the possibility of a margin call on the margin loan on President Masayoshi Son’s SBG shares and the need to keep LTV below 25%.
Readers may remember Son’s IOU headaches from a Robert Smith piece in November 2022. Just over a third of Son’s SoftBank shares are currently posted as collateral for margin loans. From Rob’s write-up for Alphaville:
To summarise, SoftBank is extending credit to its CEO to invest in a fund it manages. The loan is secured on a) his equity in the fund b) a bunch of SoftBank shares and c) his personal wealth. Just try to wrap your head around what would happen in a scenario where massive investment losses at SoftBank trigger a share price slide that wipes out most of Masa’s net worth.
Is that doomsday scenario beginning to emerge? Kind of, reckons Citi (with our emphasis below):
Driven by Internet/AI expectations, the so-called unicorn bubble is one of the bubbles created by the excessive liquidity that central banks have been competing to provide in response to the pandemic. SBG—and its SVFs—could be hard hit by the collapse of the unicorn bubble. The longer economic stagnation and elevated interest rates persist, the tougher funding conditions get for unlisted companies, generally.
Moreover, financial institutions could become more cautious about lending to these unicorns, as SVB, which had a track-record of funding unlisted firms, went bankrupt, and unease has been mounting about similar banks following the SVB bankruptcy. While the percentage of SVF portfolio companies that are set to deplete their funds in the next twelve months is a mere 1% at SVF1, it is 10% at SVF2 and 21% at the LatAm Fund, and these percentages are rising. Additional valuation losses look likely at end-March (Q4) results, given the recent operating environment changes.
Also notable in this story is the role of WeWork, which is currently restructuring debt that SoftBank holds. The tl;dr, via Citi:
The situation is clearly fluid and it is hard to estimate SBG’s NAV accurately.
They estimate the red line for #drama would be a share price of ¥4,300, at which level Son pledged some 6mn shares as collateral for a 2020 loan.
So, how does SoftBank look at the moment?