Softbank’s China strategy fails as key bets disappoint
HONGKONG/BEIJING: For Softbank Group Corp., financial technology firm Oneconnect’s initial public offering (IPO) should have been a vindication of an aggressive China investing strategy.
Instead, embarrassed bankers had to slash the offering size and cut its price as investors baulked at a business model seen too reliant on majority owner Ping An Insurance. The IPO valued Oneconnect at $3.7 billion, about half its worth last year when Softbank’s Vision Fund invested $100 million, and its stock finished flat in its debut on Friday.
Oneconnect Financial Technology is just one of many China bets placed by the Japanese investment giant or its massive Vision Fund which have run into trouble. That’s added to global woes for Softbank CEO Masayoshi Son, under fire for bad judgement and insufficient due diligence, exemplified by US office-space startup Wework’s disastrous IPO attempt and subsequent bailout.
In Zhongan Online P&C Insurance Co. Ltd’s 2017 IPO, for example, Softbank ploughed in $550 million as a cornerstone investor. But the deal was seen by some investors as way overvalued and now trades at about half its IPO price. Its unlisted portfolio has also had problems. The Vision Fund in February invested $1.5 billion in Guazi.com, valuing the second-hand car dealing platform at more than $9 billion.
But a $500 million funding round for Guazi.com in the first half of the year failed to get off the ground, people with knowledge of the fundraising said. The people, who were not authorised to speak to media and declined to be identified, said potential investors thought it was too pricey and were put off by its lack of profits in a sector where sales have been declining.
In fairness to Softbank, many China IPOS have stumbled, hurt by a sharp slowdown in economic growth and trade tensions with the US.
But investors and some bankers looking at China-related deals say Softbank’s involvement, once a sign of promising prospects, was now viewed as a red flag that a company was likely overvalued. “Softbank has become a signal that the market has peaked,” said one person involved in the Oneconnect IPO.
Softbank declined to comment on its investments in Chinese companies for this article.
Other big bets like Tiktok owner Bytedance and artificial intelligence firm Sensetime are threatened by the fallout from the Us-china trade conflict. The Vision Fund has invested roughly $1 billion in both, people familiar with the matter have said.