SoftBank Group Corp. surged the most in 11 years after unveiling a plan to raise as much as 4.5 trillion yen ($41 billion) over the coming year to buy back stock and slash debt, addressing concerns about its exposure to money-losing businesses during the coronavirus pandemic.
Billionaire Masayoshi Son’s investment giant said it’s authorized the sale or monetization over the next four quarters of unspecified assets, which include major holdings in corporations from China’s Alibaba Group Holding Ltd. to sharing-economy stalwarts such as Uber Technologies Inc. and WeWork. Part of that would go toward a new share buyback program of as much as 2 trillion yen that comes on top of previously announced repurchases.
Son is struggling to reassure investors about the stability of his empire amid fallout from the global outbreak of Covid-19, which has hammered SoftBank’s portfolio companies. The Japanese conglomerate, which also operates the $100 billion Vision Fund, is considered especially vulnerable to economic shocks because of its ties to money-losing startups across the world. The coronavirus-triggered market rout has spread to credit markets and sparked a surge in the cost of insuring debt against default — including that of SoftBank, whose credit-default swaps touched their highest level in about a decade.
Shares in the company soared 19% Monday, the most since November 2008. Alibaba’s stock was down more than 5% in the afternoon in Hong Kong. SoftBank spokeswoman Hiroe Kotera declined to comment on whether it would sell shares in the Chinese e-commerce giant. SoftBank Corp., the Japanese firm’s domestic telecom arm, ended 3.4% lower.
“This will just give a short-term boost to SoftBank’s shares but it will not change SoftBank‘s fundamentals,” said Mitsushige Akino, an executive officer at Ichiyoshi Asset Management Co. in Japan.
“SoftBank is now trying to sell its assets as the values for those are cheap,” Akino said. “Investment companies are supposed to purchase assets when they are cheap and sell them when they are expensive. It looks like SoftBank is doing the opposite, when they have to invest more money.”
Read more: Son’s Empire Wobbles as Credit Rout Hits SoftBank Debt Load
S&P Global Ratings has cut its outlook on SoftBank to negative, citing the broad market declines and the conglomerate’s plans for a buyback. SoftBank has said its financial policy is to have enough liquidity on hand to cover two years of bond repayments and focus on its loan-to-value ratio, a metric for balancing net interest-bearing debt against the value of investments. SoftBank has also said it’s curbing new investments to match the current environment and acknowledged that fundraising costs are likely to rise.
The stock repurchase program announced Monday comes on top of a 500 billion yen plan announced just over a week ago, after activist shareholder Elliott Management Corp. called on the Japanese investment firm to boost returns.
Son has pointed out the assets he has to cover any debts. They include stakes not just in Alibaba but also chip designer Arm Holdings Plc and its Japanese mobile carrier. SoftBank keeps a running tally of what it calculates is the value of its shares, excluding its debt. Despite Monday’s rally, that figure remains more than three times its closing price of 3,187 yen. The group’s holdings in Alibaba alone are worth more than $120 billion, according to data compiled by Bloomberg.
While SoftBank’s newly unveiled asset sale and buyback plan would go some way toward assuaging concerns about its situation, the big question remains the spread of Covid-19 and its ultimate impact on both investment activity and the broader economy.
“This latest share buyback underlines how desperate SoftBank is in keeping its share price from falling,” Amir Anvarzadeh, a market strategist at Asymmetric Advisors Pte. in Singapore, said in a note to clients. “Given BABA’s long-term growth potential, we think it is unlikely that SoftBank will be selling that stake while Softbank Corp.’s growth prospects look fairly limited.”
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