SoftBank listing to pay debt and back tech trends

SOFTBANK Group Corp has won approval to conduct a 2.4 trillion yen (US$21.04 billion) initial public offering of its domestic telecoms business.

The IPO will provide the group with funds to pay down debt and continue placing big bets on innovations that Chief Executive Masayoshi Son predicts will drive future tech trends.

SoftBank’s ventures so far have been as varied as small gaming startups, ride-hailing firms such as Uber Technologies Inc, and e-commerce behemoth Alibaba Group Holding Ltd.

SoftBank Group aims to raise 2.4 trillion yen through the sale of 1.6 billion SoftBank Corp shares at a tentative price of 1,500 yen each.

The amount could rise by 240.6 billion yen if demand triggers an overallotment.

The final IPO price will be determined on December 10, and SoftBank Corp will list on the Tokyo Stock Exchange on December 19 with an initial market value of 7.18 trillion yen — about 1 trillion yen above that of rival KDDI Corp.

The mammoth offering comes at a time when investors have begun questioning the outlook for Japanese telecoms companies.

The IPO was initially expected to appeal to investors seeking stability, but the government has called on carriers to lower fees while backing more wireless competition, sending shockwaves through the industry.

Yet SoftBank’s brand name is still likely to draw retail investors long accustomed to using SoftBank’s phone and internet services. Many still see CEO Son as a tech visionary who challenged entrenched rivals NTT DoCoMo Inc and KDDI, and brought Apple’s iPhone to Japan.

Japanese households are commonly seen as an attractive target in IPOs with their 1,829 trillion yen in financial assets, even if they are traditionally risk-averse with over 50 percent of assets in cash and deposits.

More than 80 percent of the shares will be offered to domestic retail investors.

“I think a reasonable amount of money will be attracted to this one,” said Tetsutaro Abe, an equity research analyst at Aizawa Securities.

“It’s a mobile company so the cash flow is steady. If you think about future yield and shareholder returns, it’s a far more attractive investment than government bonds.”

SoftBank Group hopes that putting a value on the telecoms business will help bolster its own share price, which it sees as undervalued.

Son in June argued that even without the domestic telecoms business, SoftBank Group shares should be worth over 14,000 yen — almost 40 percent over their current price — considering the value of its investments in Alibaba, Arm Holdings, Sprint Corp (S.N) and Yahoo Japan Corp, as well as Vision Fund.

But investors have grown nervous about the lack of clarity in some of the investments by the US$90 billion Vision Fund.

They have also been worried about the fund’s dependence on Saudi Arabia, its biggest backer, following the murder of a journalist by Saudi security officials.

Its shares closed mostly flat yesterday at 8,777 yen, down more than 20 percent since the killing in early October.