TOKYO: Masayoshi Son, SoftBank Group Corp’s billionaire founder, checks the chart. Then again. Another time. And once more for good measure.
Lately it’s only moved in one direction: Up.
It’s not a chart of the firm’s stock picks. Those are sinking fast. So too is Son’s fortune – at about US$13.5bil (RM56.7bil) it’s crashed US$25bil (RM104.98bil) in the past year, according to the Bloomberg Billionaires Index.
The chart is SoftBank’s loan-to-value ratio, which Son says he checks four times a day. It’s key to how he staged his comeback over the past two decades after losing billions during the dot-com crash.
Just last year, SoftBank was flying high, borrowing against its wildly lucrative stakes in tech investments such as Alibaba Group Holding Ltd and plowing the money into the promising upstarts of tomorrow.
Even when there were epic failures – Wirecard AG or Greensill Capital – profits elsewhere buried the problem.
Recently though, problems just keep piling up.
From China’s tech crackdown to Russia’s invasion of Ukraine, inflation to the markets, a litany of troubles has beset Son and his conglomerate.
The stock has tumbled almost 60% in the past year and the loan-to-value chart that Son obsesses over daily just keeps ticking higher, indicating SoftBank’s net debt is getting unwieldy relative to the equity value of its holdings. Some market watchers are flagging the risk of margin calls.
“There’s no good news in sight,” said Tomoaki Kawasaki, a senior analyst at Iwai Cosmo Securities Co. “If they’re asked to increase collateral, it’ll mean investors have to be more cautious of the finance risks the company’s facing.”
Son, 64, acknowledges these are difficult times.
In February, he described SoftBank as being “in the middle of a winter storm” and announced a decline in the net value of the company’s assets for the three months through December.
Since then, it’s just gotten worse.
The market for new share sales, critical to SoftBank’s success, has dried up. Didi Global Inc sank a record 44% on Friday after the ride-hailing company suspended preparations for a Hong Kong listing.
In the latest sign that SoftBank is strapped for cash, its Vision Fund sold US$1bil of shares in South Korean e-commerce giant Coupang Inc at a discount last week.
“The macro picture for SoftBank’s investments and prospect for listings are not looking good,” said Amir Anvarzadeh, a strategist for Japan equity at Asymmetric Advisors, who recommends betting against the stock.
The falling value of its investments, such as Alibaba, exposes the company to the risk of margin calls, he added.
Son has explained to investors how he checks SoftBank’s loan-to-value ratio, or LTV, multiple times a day.
The measure, calculated by dividing its net debt by the equity value of its holdings, jumped to 22% at the end of last year from 8.8% in June 2020.
The conglomerate aims to keep the ratio under 25%. But an increase in borrowing, along with declines in Alibaba and SoftBank shares, have pushed it even higher this year.
S&P Global Ratings, which unlike SoftBank includes margin loans in its LTV calculation, estimated the ratio at 29% on a March 7 call, according to Bloomberg Intelligence senior credit analyst Sharon Chen.
If it exceeds 40%, that could trigger a potential downgrade from the current BB+ rating.
The Japanese firm depends on financing to maintain its investment pace and support its share buyback programme.
It will need as much as US$45bil (RM188.97bil) in cash this year, Jefferies analyst Atul Goyal predicted last month, adding that it will probably sell Alibaba shares to meet the demands.
SoftBank has long relied on asset-backed financing, which is cheaper than other forms of funding.
This includes pledging assets in exchange for cash to invest in early-stage startups and using prepaid forward contracts – where SoftBank receives money upfront for a future sale of its holdings.
As of December, it had pledged more than half of its stakes in Alibaba, T-Mobile US Inc, Deutsche Telekom AG and its telecom unit SoftBank Corp. — Bloomberg