An insight into a big company facing financial difficulties by Ulvi Haqverdi.
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SoftBank is an international conglomerate holding company headquartered in Tokyo, which is also the second biggest Japanese public company after Toyota. The company has been founded and led by Masayoshi Son since 1981 and was ranked 36th biggest company worldwide by Forbes in 2017. It has got a global reputation for holding a considerable amount of stakes at telecommunications, e-commerce, technology services, finance, media and marketing companies and promising startups. Particularly, its significant investments in well-established companies, such as WeWork, Uber, Alibaba Groups through its partnership with Saudi investors for the world’s largest technology-focused venture capital fund, Vision Fund, has attracted a lot of international recognition for company’s ongoing success.
The coronavirus pandemic that resulted in notable multinational and domestic companies filing bankruptcy and declaring significant revenue losses, impacted SoftBank considerably. This happened regardless of its core businesses focusing on long-term telecommunications contracts. In May, the company announced the biggest quarterly loss of $13 billion in its history – its Saudi-backed Vision Fund recording $18 billion loss that was the main catalysing factor in the formerly mentioned loss. The disruptions in Uber’s and Wework’s businesses particularly constituted more than half of Vision Fund’s losses.
Interestingly, the company warned its shareholders that it might not distribute dividends for the first time in the past quarter-century. In March 2020, $41 billion asset sale was announced in order to raise funds aiming to share buyback and debt reduction. SoftBank CEO, Masayoshi Son believed that this asset sale would prevent the reduction of already shrunk SoftBank shares.
In April 2020, Sprint, an American telecommunications company where SoftBank holds 84% stake of its total equity, merged with T-Mobile US, an American telecommunications company majority-owned by Deutsche Telekom. SoftBank subsequently informed the investment community that it will sell its stake in T-Mobile that initially was estimated around $30 billion. It was believed that the remaining amount could be raised from the company’s shares in Alibaba, as the relationship between these two companies has been worsened since Alibaba’s CEO, Jack Ma’s resigned from the SoftBank’s board.
However, such a sudden significant share sell would outstrip the demand. Thus SoftBank came to an agreement for a call option of 101 million shares, worth around $10.8 billion, with Deutsche Bank, the biggest stake owner of T-Mobile. In terms of the remaining shares in T-Mobile, SoftBank recently announced that it will raise $21 billion from share sell, having valued a T-Mobile share at $103.
Nevertheless, SoftBank has been facing other significant drawbacks too. A recent Wirecard scandal should be highlighted in this context, where a $2 billion gap was found in Wirecard’s balance sheet, having caused the company’s shares shrinking and bringing it to the verge of bankruptcy. SoftBank Investment Advisers invested $900 million in Wirecard through its convertible bond in 2019, and the recovery of such an amount does not seem realistic following this scandal.
In conclusion, the defensive nature of the telecommunication industry gave SoftBank a substantial advantage, particularly in reaching agreements regarding its asset sale and debt reduction.
Written by Ulvi Hagverdi and edited by Stephanos Christodoulou.
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