Softbank’s Son humbled after Vision Fund’s $8.9 billion loss
TOKYO: Softbank reported its first quarterly loss in 14 years on Wednesday, whiplashed by an $8.9 billion hit at its giant Vision Fund and marking a rare, humbling moment for chief executive officer (CEO) Masayoshi Son over his backing of troubled startup Wework.
The scale of the loss shows the risks in Son’s strategy of splashing out big on cash-burning startups. It has also cast a pall on his efforts to raise a second massive fund.
Wework’s spectacular flameout this year has sparked questions about Son’s judgement in backing unconventional tech founders such as Wework’s Adam Neumann. Softbank was forced last month to spend more than $10 billion to bail out the office-sharing startup after its initial public offering (IPO) attempt flopped.
“My investment judgement was poor in many ways and I am reflecting deeply on that,” Son, 62, told a news conference following the results. It was a remarkable admission for an executive well known for his ebullience.
He said he had turned a blind eye to problems with Neumann in areas such as corporate governance.
Nevertheless, Son was defiant that Wework was still a solid business, saying there would be a “hockey stick” recovery in its profits eventually.
Softbank Group Corp said its $100 billion Vision Fund contributed an operating loss of 970 billion yen ($8.9 billion) during the July-september quarter, and an unrealised loss of 537.9 billion yen for the six months of the year as the value of its tech bets such as Wework and Uber Technologies tumbled.
Overall, the group posted an operating loss of 704 billion yen ($6.5 billion) in the July-september quarter compared to a 706 billion yen profit in the same period a year earlier and a 48 billion yen loss forecast by analysts, according to Refinitiv.
It wrote down the value of its investment in Wework by $3.4 billion in the second quarter and expected the loss to widen to $4.6 billion in the current fiscal year.
The results are likely to put a renewed focus on Softbank’s considerable debt pile. It has more than $51 billion in outstanding bonds, and another $36 billion in bank loans. Its weighted average cost of debt is 3.7%, the seventh-highest among all companies on the Nikkei 225 Stock Average, according to Refinitiv data. Both Moody’s and S&P rate its debt as junk.
The Saudi Arabia-backed Vision Fund, which is run by ex-deutsche Bank banker Rajeev Misra, has invested $70.7 billion in 88 companies at the end of September. Those investments are now worth $77.6 billion excluding exits, it said.
Son said he expects the second Vision Fund to go ahead as scheduled, and at a similar size to the first fund, but he declined to provide an update on negotiations with investors.
UNITED NATIONS: India gained about $755 million in additional exports, mainly of chemicals, metals and ore, to the US in the first half of 2019 due to the trade diversion effects of Washington’s tariff war with China, a study by the United Nations Conference on Trade and Development (UNCTAD) has said.
The study named ‘Trade and Trade Diversion Effects of United States Tariffs on China’ shows that the ongoing Us-china trade war has resulted in a sharp decline in bilateral trade, higher prices for consumers and trade diversion effects—increased imports from countries not directly involved in the trade war.
The study puts the trade diversion effects of the Us-china tariff war for the first half of 2019 at about $21 billion, implying that the amount of net trade losses corresponds to about $14 billion. The US tariffs on China have made other players more competitive in the US market and led to a trade diversion effect. These trade diversion effects have brought substantial benefits for Taiwan (province of China), Mexico, and the European Union.
“Trade diversion benefits to Korea, Canada and India were smaller but still substantial, ranging from $0.9 billion to $1.5 billion,” UNCTAD said.
The remainder of the benefits were largely to the advantage of other South East Asian countries.
MASAYOSHI SON, Softbank CEO