Interesting read. For someone who has the time and patience to gather data against the author's arguments, I would highly recommend going to the source of the data. SoftBank's financials - FY 2018-19[1]. I had a quick skim at the segments of the company and they have some interesting sources of revenue/profit which could provide some cushion: ARM, SoftBank itself (telecom), Sprint!, Yahoo Japan.
Can someone more experienced than I am on financial matters check if they're in deep shit as the article suggests?
> Can someone more experienced than I am on financial matters check if they're in deep shit as the article suggests?
I'm no financial expert but "¥15.7tn ($143bn) of interest-bearing debt" is a lot of money, in case shit will end up hitting the proverbial fan (meaning a recession that will make refinancing a lot harder) then I don't see an easy way out for them. I also don't know what "¥27tn of total liabilities" really stands for, but that doesn't sound good either.
Adding those two numbers up gives you about $300 billion that is owed by SoftBank in one way or another (debt + liabilities), that is a lot of money that cannot easily be covered by SoftBank's current assets in case they'll become hungry for liquidity. And I don't think the biggest part of that sum has a long maturity (think 10, 20 even 30 years), probably most of it it's due in the next few years (even though I may be wrong on this one, I admit).
I was under the impression most if SoftBank's loans are denominated in JPY and have almost 0% interest. If you have $143Bn in interesting bearing debt at like 0.1% interest -- as long as you buy anything that will inflate at the normal rate of inflation -- you should make a killing, right?
Debt is a type of liability, so the second number already includes the first one. That said, their liabilities are ~3x their current market cap, and that’s assuming it is real, which the article argues is likely far from being the case. So if the portfolio valuation starts to really slide down, it’s unclear how they’ll be able to pay down the debt or convince new creditors to lend them more.
I didn't see it mentioned in the article but I think it's an important factor: The massive intervention by the BoJ in the corporate bond market of Japan. The BoJ is even buying bonds with negative yield. There's just so much Yen printed by the BoJ it's no surprise that some of it ends up in a venture capital fund, driving up valuations of startups around the globe. After all this is what everyone is warning about: Zero or even negative interest rates will distort valuations and capital allocation.
BoJ's money printing is dwarfed by Fed's and ECB's money printing. Japan has been doing it since 1989, Softbank cant be explained by Japan alone.
> Zero or even negative interest rates will distort valuations and capital allocation.
interest rates policy ( monetary ) has little to do with capital efficiency.
Central banks have rightly figured out a few things :
- Their respective countries have taken on too much debt, and we need to do something to reduce it.
- Market forces ( globalization + technology ) are having tremendous deflationary effects that is pushing down interest rates, their job is to find out that number.
> interest rates policy ( monetary ) has little to do with capital efficiency.
I don't know what you mean by capital efficiency. The BoJ corporate bond purchasing program lowers interest rates for all issuers on the Yen bond market, including the ones issued by SoftBank. Because SoftBank itself invests into the fund (around $28bn) and raised capital with bond issuance the link between BoJ open market interventions and startup valuations should be clear.
> Central banks have rightly figured out a few things :
> Their respective countries have taken on too much debt, and we need to do something to reduce it.
In the case of the ECB and the Fed (don't know about BoJ) the reason is actually the opposite. Fiscal expansion has been very unpopular politically in both the US and the EU (there mainly due to the fiscal austerity demanded by Germany). Because there was no political will to increase national debts, the central banks stepped in and started to directly purchase bonds (both governmental and private) in order to rekindle growth after the financial crisis. If governments started massive infrastructure projects or otherwise expanded their balance sheets, then this central bank intervention would have been much smaller. As a result of central bank interventions - which has reduced interest rates for gov. bonds - countries have started to issue more debt once again.
> Market forces ( globalization + technology ) are having tremendous deflationary effects that is pushing down interest rates, their job is to find out that number.
As far as I know there isn't a consensus for an explanation why the current low inflation environment persists (the "New Normal"). Globalization and technology might well be an explanation but global demographic shifts could also be an important factor (ageing populations and declining birth rates in most industrialized countries).
But that's the intent of rates that low, to try cause more activity for economic exploration to create or expand capabilities of businesses. The inflation only really becomes a concern if there is "too much" activity that yields too little lasting value creation. With too much being in quotes because that determination is a vastly complex and non-deterministic judgement call.
Softbank kind of reminds me of the Icelandic banks in the last bubble, in that in both cases I was wondering how they managed to get all the money they had.
Just before it all went off that time, these icelandic banks were buying up everything in sight, and I was thinking "where are these banks from a small country getting this kind of money"
Softbank seems similar, in that the scale of its funds is absolutely massive for a single company (vision fund one at $100b and suggestions of a second $100b vision fund in the offing). If there's a lot of fancy debt going on, it's the kind of that seems like it could blow up in spectacular fashion (as the icelandic banks did last time)
That and Softbank, at least from my limited visibility seems to throw money at a lot of startup like ventures in terms of the risk reward.
Maybe overall they're far more grounded than I see but I swear I only hear about them publicly when they're taking some risky chances that most probabbly won't pay off...
If they're borrowing I wonder who goes down with them?
There's a chart that says "Morgan Stanley caught red handed with a massive short book" - but isn't this exactly what they're supposed to do with the "greenshoe"? I.e., oversell the offering by taking a short position themselves, then buy it back later to move up the price?
> "SoftBank routinely selling assets to its Vision fund."
Can anyone help me understand the real reason Softbank does this and whether investors of VF are okay with it? One case I know of is Coupang [1], a Korean E-commerce company, recently "priced" by VF at $9B. Last year, Softbank sold its 20% shares in Coupang to VF at a 30% loss (down-valuation) and then VF poured in an additional $2B to Coupang. It appears Masa did double down on Coupang but why bother to sell its long position at a loss? Not a domain expert on this, so I wonder what is really going on...
I am curious if there are any counter-views published out there. Softbank is undeniably big and heavily invested in the VC basket. Is there public analysis on how well the larger entity is protected to down-valuation of their portfolio of startups?
>How SoftBank got here is a story as old as man itself.
You see, thanks to QE, pushing investors out the risk curve fanned the largest venture capital boom in all of history. Trust me, I know this. I built, then sold a VC firm because I could see what was happening.
I feel he's projecting his own experience setting up and flipping a small VC firm ("Between July 2012 and April 2016 led the investment of $35M into 32 early stage venture...") onto SoftBank.
Readit News
Can someone more experienced than I am on financial matters check if they're in deep shit as the article suggests?
[1]https://cdn.group.softbank/en/corp/set/data/irinfo/financial...
Edit: spelling mistakes /facepalm
I'm no financial expert but "¥15.7tn ($143bn) of interest-bearing debt" is a lot of money, in case shit will end up hitting the proverbial fan (meaning a recession that will make refinancing a lot harder) then I don't see an easy way out for them. I also don't know what "¥27tn of total liabilities" really stands for, but that doesn't sound good either.
Adding those two numbers up gives you about $300 billion that is owed by SoftBank in one way or another (debt + liabilities), that is a lot of money that cannot easily be covered by SoftBank's current assets in case they'll become hungry for liquidity. And I don't think the biggest part of that sum has a long maturity (think 10, 20 even 30 years), probably most of it it's due in the next few years (even though I may be wrong on this one, I admit).
https://techcrunch.com/2018/11/06/softbanks-debt-obsession/
> Zero or even negative interest rates will distort valuations and capital allocation.
interest rates policy ( monetary ) has little to do with capital efficiency.
Central banks have rightly figured out a few things :
- Their respective countries have taken on too much debt, and we need to do something to reduce it.
- Market forces ( globalization + technology ) are having tremendous deflationary effects that is pushing down interest rates, their job is to find out that number.
BoJ's money printing is on the same level as ECB and Fed. Most recent data I could find is here: https://www.valuewalk.com/2019/05/gundlach-g4-central-banks-... Both ECB and BoJ hold around $5trn in assets, Fed is third with around $4trn.
> interest rates policy ( monetary ) has little to do with capital efficiency.
I don't know what you mean by capital efficiency. The BoJ corporate bond purchasing program lowers interest rates for all issuers on the Yen bond market, including the ones issued by SoftBank. Because SoftBank itself invests into the fund (around $28bn) and raised capital with bond issuance the link between BoJ open market interventions and startup valuations should be clear.
> Central banks have rightly figured out a few things :
> Their respective countries have taken on too much debt, and we need to do something to reduce it.
In the case of the ECB and the Fed (don't know about BoJ) the reason is actually the opposite. Fiscal expansion has been very unpopular politically in both the US and the EU (there mainly due to the fiscal austerity demanded by Germany). Because there was no political will to increase national debts, the central banks stepped in and started to directly purchase bonds (both governmental and private) in order to rekindle growth after the financial crisis. If governments started massive infrastructure projects or otherwise expanded their balance sheets, then this central bank intervention would have been much smaller. As a result of central bank interventions - which has reduced interest rates for gov. bonds - countries have started to issue more debt once again.
> Market forces ( globalization + technology ) are having tremendous deflationary effects that is pushing down interest rates, their job is to find out that number.
As far as I know there isn't a consensus for an explanation why the current low inflation environment persists (the "New Normal"). Globalization and technology might well be an explanation but global demographic shifts could also be an important factor (ageing populations and declining birth rates in most industrialized countries).
Just before it all went off that time, these icelandic banks were buying up everything in sight, and I was thinking "where are these banks from a small country getting this kind of money"
Softbank seems similar, in that the scale of its funds is absolutely massive for a single company (vision fund one at $100b and suggestions of a second $100b vision fund in the offing). If there's a lot of fancy debt going on, it's the kind of that seems like it could blow up in spectacular fashion (as the icelandic banks did last time)
https://www.nytimes.com/2018/11/05/business/softbank-son-sau...
Maybe overall they're far more grounded than I see but I swear I only hear about them publicly when they're taking some risky chances that most probabbly won't pay off...
If they're borrowing I wonder who goes down with them?
Can anyone help me understand the real reason Softbank does this and whether investors of VF are okay with it? One case I know of is Coupang [1], a Korean E-commerce company, recently "priced" by VF at $9B. Last year, Softbank sold its 20% shares in Coupang to VF at a 30% loss (down-valuation) and then VF poured in an additional $2B to Coupang. It appears Masa did double down on Coupang but why bother to sell its long position at a loss? Not a domain expert on this, so I wonder what is really going on...
https://www.bloomberg.com/news/articles/2018-11-20/softbank-...
Deleted Comment
I feel he's projecting his own experience setting up and flipping a small VC firm ("Between July 2012 and April 2016 led the investment of $35M into 32 early stage venture...") onto SoftBank.
Mr Son "invented an electronic translator that he sold to Sharp Corporation for about $1 million" when he was 19, around and has a pretty good record of tech investment over the 42 or so years since, with Softbank started in 1981, and plans to be around a while ("... SoftBank Group, which aims to keep growing for the next 300 years") https://group.softbank/en/corp/about/philosophy/value/ https://www.nytimes.com/1995/02/19/business/a-japanese-gambl...
I don't think they got here as a response to QE.
https://www.bloomberg.com/news/articles/2019-06-06/how-son-m...