By Sam Nussey
TOKYO (Reuters) – Japan’s SoftBank Group Corp reported a stunning $18 billion loss at its giant Vision Fund, pushing Masayoshi Son’s conglomerate to a record loss and highlighting the deepening crisis at its portfolio companies from the global downturn.
The disastrous 1.9 trillion yen ($18 billion) operating shortfall at the Saudi-backed Vision Fund, including losses of almost $10 billion at office-sharing firm WeWork and ride- hailing app Uber Technologies Inc alone, left SoftBank with its worst annual loss of 1.4 trillion yen.
Son, who has been pressured by U.S. hedge fund Elliott Management to make share buybacks and bolster governance, said SoftBank would raise 1.25 trillion yen against its stake in China’s Alibaba Group.
“The coronavirus is an unprecedented crisis,” a notably downbeat Son told an earnings presentation, comparing it to the Great Depression.
Appearing far more subdued than usual, Son said some of his tech unicorns had fallen “into the valley of the coronavirus”.
“I believe some of them will fly over the valley,” he added, standing beside a slide depicting cartoon unicorns dropping into a hole as a lone winged unicorn escaped to the other side.
The crisis has pushed the Vision Fund’s portfolio underwater, with its $75 billion investment in 88 startups worth $69.6 billion at the end of March. The $100 billion fund had already delivered two consecutive quarters of losses before being upended by the outbreak.
SoftBank booked a $7.5 billion loss on other tech investments, which it attributed primarily to the economic shock caused by the virus. The outbreak has exacerbated underlying problems at many of its bets on unproven startups.
The company is loosening ties with Alibaba Group, the largest asset in its portfolio, with the Chinese e-commerce major’s co-founder, Jack Ma, departing the SoftBank board.
SoftBank provided scant detail on which companies saw writedowns but offered a sector breakdown showing investments in construction and real estate were worth less than half of cost price, with flagship transportation investments also underwater.
The company has leveraged its investments to supply further funding for other bets – a strategy that has come under strain as valuations tumble – with losses larger than the group’s revised estimate from just last month.
SoftBank-backed satellite operator OneWeb filed for bankruptcy in late March, adding to an impairment loss for investments held outside the Vision Fund that also includes part of the stake in WeWork.
The group pointed to further pain to come, saying “uncertainty in its investment business will remain over the next fiscal year” if the pandemic continues.
Son declined to set a dividend for the current financial year for the first time, underscoring the pressure for SoftBank.
With his usual emphasis on the total value of SoftBank’s assets rather than profits, which are buffeted by the Vision Fund’s nebulous valuations, Son admitted that shareholder value has fallen and net debt grown this year.
The turmoil has given leverage to activist shareholder Elliott, which, in addition to recommending share buybacks, is pushing for greater transparency and oversight.
The demands echo critics who argue SoftBank is dominated by Son and offers little visibility on how the valuations that drive its profit are reached.
The group has pledged the sale or monetization of $41 billion in assets, in part to finance a 2.5-trillion-yen buyback to prop up its share price. By the end of April it had spent 250 billion yen on share purchases.
Reporting by Sam Nussey; Editing by Muralikumar Anantharaman, Clarence Fernandez and Chizu Nomiyama.