Con­fu­sion lingers over Softbank’s in­vest­ment in Vi­sion Fund

New Straits Times - - Business -

Since SoftBank’s bil­lion­aire founder Masayoshi Son an­nounced the US$100 bil­lion (RM445 bil­lion) SoftBank Vi­sion Fund to make tech­nol­ogy in­vest­ments, there has been con­fu­sion over its pur­pose and meth­ods.

A Fi­nan­cial Times re­port last week about SoftBank sell­ing the fund a 25 per cent stake in United King­dom chip­maker ARM Hold­ings won’t help.

Of many ques­tions sur­round­ing the Vi­sion Fund, which still has not of­fi­cially closed, there’s a cru­cial one: where does SoftBank Corp end and Vi­sion be­gin?

It’s an im­por­tant point that Son hasn’t an­swered yet. SoftBank has said only that it ex­pects to in­vest at least US$25 bil­lion in the en­tity over the next five years, and that it will be joined by a US$45 bil­lion con­tri­bu­tion from the Pub­lic In­vest­ment Fund of the King­dom of Saudi Ara­bia, and oth­ers.

But the ac­qui­si­tions made (or pro­posed) to date for United States as­set man­ager Fortress and satel­lite com­pa­nies OneWeb and In­tel­sat SA have been done by SoftBank, not the fund.

Some of the as­sets may later be of­fered to the fund, as is hap­pen­ing with the ARM stake.

If you’re con­fused, that’s okay. It’s con­fus­ing. It’s also ques­tion­able gover­nance, sig­nalling po­ten­tial risks not just for other in­vestors in Vi­sion but for SoftBank share­hold­ers too.

The ARM stake sale is a case in point. SoftBank is sell­ing it to the fund for US$8 bil­lion, which cor­re­sponds roughly to the same val­u­a­tion it bought it for back in July, said the FT re­port.

Sup­pos­edly this is hap­pen­ing to help Vi­sion se­cure a US$15 bil­lion com­mit­ment from Abu Dhabi’s Mubadala.

If true, it im­plies one in­vestor may be able to dic­tate in­vest­ment de­ci­sions for the whole fund, open­ing up a Pan­dora’s box of com­pli­ca­tions.

From the point of view of SoftBank share­hold­ers, they’re hand­ing over a chunk of a strong com­pany that the Ja­panese group paid a 43 per cent pre­mium to buy, po­ten­tially giv­ing away some up­side.

From the fund’s side, it gets an ARM stake with­out much in­flu­ence. Yet the hold­ing could ac­count for as much as 10 per cent of the Vi­sion as­sets.

The bullish ar­gu­ment is that the fund gets to en­joy the ben­e­fits of ARM’s syn­er­gies with SoftBank. And, in fair­ness, ARM is a prize as­set. Vi­sion Fund in­vestors would prob­a­bly worry more about how it’s go­ing to spend the rest of the US$100 bil­lion.

That said, Son’s ARM bet is no sure thing. It de­pends on the Bri­tish chip de­signer be­com­ing a force in the so-called In­ter­net of Things. Should ARM’s earn­ings turn south, or SoftBank be forced into a sale to cover debts or losses else­where, the Vi­sion Fund will take the hit.

This all shows that checks and bal­ances are needed be­tween the com­pany and the fund. Per­haps th­ese will be­come more ap­par­ent once the Vi­sion Fund closes.

SoftBank share­hold­ers should de­mand clar­ity. They may end up gain­ing from Son’s canny idea to use the fund as a way to tur­bocharge his in­vest­ments

He cer­tainly wouldn’t be able to do what he wants to do out of SoftBank’s money since it car­ries US$128 bil­lion in debt. But they could also be hurt if the fund’s in­vest­ments fail to gen­er­ate re­turns or dis­tract Son from his other op­er­a­tions.

It’s not enough for Son to rest upon his rep­u­ta­tion as a tech vi­sion­ary to be given a mas­sive pot of money to in­vest, with no strings at­tached and a blurry re­la­tion­ship with his com­pany.

Son be­lieves in a few decades we’ll all be liv­ing in a world pow­ered by AI and ro­bots. He’s prob­a­bly right, but he still may burn a lot of other peo­ple’s money along the way.

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