SoftBank CEO slams Khashoggi killing, but keeps Saudi ties
Firm head doesn’t rule out tech-investment fund taking more money from the kingdom
TOKYO— The chief executive of SoftBank Group Corp. denounced the killing of Saudi journalist Jamal Khashoggi but said it wouldn’t affect his company’s current ties to the kingdom, which helps bankroll his largest-in-the-world technology-investment fund.
Last month’s killing of Mr. Khashoggi has raised political risks for SoftBank, which operates the Vision Fund, backed by a $45 billion commitment from Saudi Arabia. The fund has been taking on more financial risk, adding debt to an already leveraged structure to chase stakes in the world’s biggest startups, such as office-space provider WeWork Cos.
Grisly details about the killing of Mr. Khashoggi at the Saudi consulate in Istanbul prompted many Silicon Valley companies, including some that have received investment from SoftBank or its Vision Fund, to cancel their speaking engagements at a Riyadh conference last month sponsored by the Saudi sovereign-wealth fund.
SoftBank Chief Executive Masayoshi Son said he canceled his appearance on stage at the conference but met with Saudi Crown Prince Mohammed bin Salman and made his concerns known.
“This was a tragic incident that should not have happened,” said Mr. Son, who also controls Sprint Corp., at a news conference on SoftBank’s quarterly earnings on Monday.
“I sincerely hope that the truth will soon be revealed and that we are given a proper explanation.”
Mr. Son said that having received an investment from the Saudi people, SoftBank had an obligation to help Saudi Arabia diversify its economy.
He didn’t rule out possible future investments by the kingdom, saying he would take into account the findings of the investigation into the killing.
The Saudi government has denied that Prince Mohammed had direct knowledge of the kingdom targeting Mr. Khashoggi, despite persistent suspicions by Turkish and Western officials that he must have known about it. The prince has condemned the killing as a “hideous incident.”
It has caused soul-searching in Silicon Valley, where Saudi Arabia is the largest single funding source for startups. So far, not many have turned away Vision Fund money, Mr. Son said, although he said “there may be a little impact.”
The risk from the Vision Fund’s ties to the Saudis comes as the fund is taking on more debt to goose returns.
The SoftBank Vision Fund and its affiliate Delta Fund together command $98 billion in capital. AThey are using it to chase investments in some of the world’s most valuable tech startups. SoftBank also has invested in ride-hailing pioneer Uber Technologies Inc. and plans to transfer the stake to the Vision Fund. Around 60% of the money promised to the Vision Fund by investors other than SoftBank takes the form of debtlike securities that earn a 7% fixed return annually. That is an unusual structure for a fund that backs young, unprofitable companies, where it is unclear when—or if—investors will make money.
On top of that, the Vision Fund and its affiliate have been borrowing money: They had around ¥636 billion ($5.6 billion) in debt as of the end of September, up 28% in the past six months, according to SoftBank filings. That money has partly been going to pay the returns promised the funds’ investors, the filings say.
And SoftBank is planning to have the Vision Fund borrow an additional $9 billion or so to boost the fund’s returns further and make more investments, Mr. Son told The Wall Street Journal after the press conference.
Those returns have already been stellar, Mr. Son said at the press conference, pointing to a chart that showed SoftBank’s operating profit up 62% to ¥1.4 trillion during the first half of the fiscal year from a year earlier—largely because of income from the Vision Fund.
SoftBank logged an operating profit of ¥632 billion from the Vision Fund in the six months ended Sept. 30, more than triple the year-earlier amount, thanks to the sale of its stake in Indian e-commerce company Flipkart to Walmart Inc., as well as valuation gains in companies such as chipmaker Nvidia Corp. and Indian budget hotel booking company OYO.
Total debt at SoftBank, whose bonds are given a junk-level rating by credit-rating firms, was close to ¥18 trillion at Sept. 30, compared with ¥3.2 trillion in cash and cash equivalents. Much of the debt is tied to Sprint and SoftBank’s business in Japan as a cellphone-service provider.
“Next year, our results will far exceed this year’s. Quite possibly we’ll have a level of operating profit that has never been seen before in Japan,” Mr. Son said.