SoftBank to List Japanese Telecom To Bolster Finances -- WSJ

02/08/18 02:47 AM EST
By Phred Dvorak and Mayumi Negishi 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (February 8, 2018).

TOKYO -- SoftBank Group Corp., which already manages the world's biggest tech-investment fund, is stepping harder on the gas.

The Japanese technology and investment conglomerate said Wednesday that it is planning to list its cash cow -- the unit that runs Japan's third-largest mobile carrier -- in part to have even more money to invest.

"One hundred billion dollars is not nearly enough," said SoftBank Chief Executive Masayoshi Son, referring to the size of the company's marquee Vision Fund. "My dreams are too big."

Mr. Son, who announced the plan at an earnings press conference in Tokyo, said the company would also use the listing proceeds to strengthen its finances, which have been strained by a series of huge acquisitions in recent years, including U.S. mobile carrier Sprint Corp. He said he hoped the Japanese unit, SoftBank Corp. would go public within a year.

Mr. Son declined to comment on how much money the listing might raise or how much of that funding SoftBank would use for investments. Analysts have said the unit's total value could be about Yen6 trillion to Yen6.6 trillion ($55 billion to $60 billion), meaning a sale of a minority portion under securities rules could raise nearly $20 billion.

Moody's Investors Service and Standard & Poor's, which both give SoftBank a non-investment-grade, or "junk," rating, said their outlooks for the company's credit standing after a listing of the Japan mobile carrier would depend in large part on how much is floated. That would determine how much cash flow SoftBank stands to lose.

Proceeds from a public offering of SoftBank's Japan mobile unit would bolster an already formidable arsenal of capital, whose multimillion- and multibillion-dollar investments are roiling the venture-capital world.

SoftBank last year launched a pair of funds -- the Vision Fund and an affiliate -- backed by Middle Eastern money and totaling nearly $98 billion, an amount that far outstrips the size of other technology-investment funds.

SoftBank and the pair of funds invested some $34 billion in 2017, according to data tracker Dealogic. Recent investments include about $8 billion in U.S. ride-hailing giant Uber Technologies Inc., more than $9 billion in Uber's Chinese equivalent, Didi Chuxing Technology Co., and $300 million in dog-walking app Wag Labs Inc., which Mr. Son described as "Uber for dogs."

"This would have been impossible for venture capital up to now," said Mr. Son, noting that the amount SoftBank is pouring into single deals equals the entire capital of many VC funds. "I want to create a coalition of companies that will continue to grow for 300 years, after I am gone."

As of the end of December, the two SoftBank funds had doled out about $27.5 billion of their capital and the company was planning to transfer to them around $10 billion more in investments.

Many SoftBank watchers are already nervous about the size of its bets and the health of its balance sheet.

Sprint, the U.S. mobile-phone operator controlled by SoftBank, has only recently returned to profit after years of losses. That $22 billion purchase by SoftBank in 2013 and the subsequent $32 billion acquisition of U.K. chip designer Arm Holdings PLC sent the Japanese company's debt soaring and its credit rating tumbling.

Besides debt, SoftBank has relied on its Japanese telecom operations and its 30% stake in Chinese e-commerce giant Alibaba Group Holding Ltd. to finance its widening sphere of acquisitions.

SoftBank formed the Vision Fund last May to help it make investments without adding to its debt, but the company's total interest-bearing debt has risen 6% since March, standing at Yen15.8 trillion at the end of December. Its finance costs in the quarter ended Dec. 31 ballooned to Yen140 billion, up 15% from the previous year.

Mr. Son said SoftBank is careful with its finances -- a legacy of its experience after the crash of the internet bubble in the early 2000s, when the company almost went under.

He said SoftBank has set a ceiling on its debt of 3.5 times earnings before interest, taxes, depreciation and amortization, a level that analysts generally view as manageable. SoftBank also doesn't want debt to exceed 35% of the value of its stockholdings, including Alibaba, meaning that its debts wouldn't overwhelm it even if its holdings halved in value. Mr. Son said SoftBank is well within those limits now.

The company's October-December net profit was Yen912.3 billion, 11 times that of the prior-year period, largely as a result of benefits to Sprint from the new U.S. corporate-tax law. Its operating profit fell 3%, missing market expectations.

Write to Phred Dvorak at phred.dvorak@wsj.com and Mayumi Negishi at mayumi.negishi@wsj.com

 

(END) Dow Jones Newswires

February 08, 2018 02:47 ET (07:47 GMT)

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