Japan's SoftBank Group (SBG) will sell up to $41 billion of assets across its global empire, using the resulting funds to slash debt and boost cash reserves amid investor unease about the impact of the COVID-19 pandemic on its business.
The divestments are planned over the next year and would include the repurchase of up to 2 trillion Japanese yen ($18.1 billion) in shares. The move comes on top of a share repurchase program valued at JPY500 billion ($4.5 billion), announced on March 13, and means the company would be repurchasing about 45% of its shares altogether.
"This program will be the largest share buyback and will result in the largest increase in cash balance in the history of SBG, reflecting the firm and unwavering confidence we have in our business," said Masayoshi Son, SBG's chairman and CEO, in a published statement. "This will allow us to strengthen our balance sheet while significantly reducing debt. Moreover, the monetization of assets represents less than 20 percent of the company's current asset value."
The company said it had more than JPY 27 trillion ($244 billion) in assets and about JPY1.7 trillion ($15.4 billion) in cash on its balance sheet. However, it looks more exposed than many other businesses to the COVID-19 outbreak: Its $100 billion Vision Fund has made investments in a number of underperforming companies, such as Uber and WeWork, while SBG's balance sheet was loaded with about $156 billion in interest-bearing debt at the end of last year.
Before the plan was announced, SBG's share price had halved in value since February 21, closing at JPY2,687 in Japan last Friday. It gained 18.6% after today's update to close at Y3,187.
It has complained that its shares are "substantially undervalued" and in its latest statement said they were trading at a 73% discount to their intrinsic value at the end of last week. Its hope is that today's measures will strengthen the balance sheet and enhance the firm's credit rating.
While SBG has not indicated which assets may be up for sale, investors will be looking at the company's nearly 30% stake in Alibaba, worth about $140 billion based on the Chinese e-commerce giant's current market capitalization of more than $470 billion.
Other major companies in which SoftBank has invested include UK chip designer ARM and US mobile operator Sprint, which is set for a merger with rival T-Mobile US after receiving approvals from important regulatory and legal authorities in recent weeks.
Marc Einstein, the chief analyst of telecom and digital services with ITR Corporation, thinks SBG's share of that business – which the firms say would be 24% after recent renegotiations – could also go up for sale, but he expects SBG's Japanese telco business to remain off the table.
"I think that initially the idea was that the telcos were meant to be cash-flow engines to fund VC activity," he said in comments emailed to Light Reading. "The T-Mobile/Sprint combined unit is possibly up for sale as they are just entering the 5G capex cycle which really makes it a lot harder."
"The Japanese telco is really the lifeblood of their business and I don't think the investment portfolio can live without it at the moment, especially given the WeWork debacle, but it is also fair to say that Son has become less interested in telco as a standalone business for many years now," he added.
A company that rents out shared office space, WeWork last year required a $9.5 billion bailout by SBG after running up losses of about $1 billion in the first six months of the year.
But it is certainly not the only SBG company that was struggling before the outbreak of COVID-19, with SBG recording a $9.1 billion plunge in net income for the first nine months of its current fiscal year, to about $4.3 billion, compared with the year-earlier period.
Son has regularly attached minimal importance to sales and profits, measures that many investors deem essential when assessing a company's performance. Instead, he urges shareholders to look at what he calls "shareholder value" – calculated by deducting interest-bearing net debt from the equity value of holdings.
That had risen to $228 billion in mid-February after a surge in share prices, from about $187 billion in September last year. After the recent market turmoil, Son is being a lot quieter than usual about his preferred metric.
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— Iain Morris, International Editor, Light Reading