SoftBank's clouds come with some silver linings

[HONG KONG] The once seemingly impossible task of taming SoftBank Group boss Masayoshi Son appears to be gaining some traction. The US$90 billion company he leads posted a record 1.36 trillion yen (S$17.96 billion) annual loss, led by pain at office-sharing outfit The We Company. But a push by activist investor Elliott Management is yielding results, funds are being spent less frivolously, stock buybacks continue apace, and asset sales are on. There are signs of a long-overdue governance shift, too.

In an earnings presentation on Monday, Mr Son forecast that Covid-19 could reap damage on markets akin to the Great Depression, when the Dow Jones Industrial Average lost 90 per cent of its value and took 25 years to recover. SoftBank's roughly US$100 billion Vision Fund posted an almost US$18 billion unrealised loss in the year to March, and 47 of its 88 portfolio companies suffered markdowns. Investments in three of only eight of its startups that have made a public debut, including Uber Technologies, are now underwater.

There were some positives. SoftBank's domestic telecoms unit, earlier the company's core business, posted a record 11 per cent rise in operating profit. The recent merger sealed between T-Mobile US and Sprint will also significantly reduce net debt, which stands at US$64 billion. Cash is also being conserved by withholding the dividend.

As the group moves from explosive growth to crisis management, it's the right time to refresh the board. Jack Ma is exiting after 13 years. That may not be a bad thing, as the Alibaba, founder hardly appears to have kept his counterpart on the right track. SoftBank has also proposed two new outside directors including Yuko Kawamoto - a professor known for her work on corporate governance who will also be the first female on the board. They might have more success.

The shift could further accelerate asset sales to fund Mr Son's massive stock buyback programme. With Mr Ma gone, it could be a little easier to sell a slither of the Chinese e-commerce giant: Its 25 per cent stake is worth US$137 billion. The Wall Street Journal also reported on Monday that the Japanese company was in talks to sell a big chunk of its roughly US$30 billion T-Mobile US stake to controlling shareholder Deutsche Telekom. There are at least some silver linings in the dark clouds over SoftBank.

Japan's SoftBank Group on May 18 reported an operating loss of 1.36 trillion yen for the year ending March 31, compared to a profit of 2.1 trillion yen for the previous financial year.

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The loss was slightly higher than the 1.35 trillion yen annual loss that SoftBank had forecast on April 30. The losses primarily stemmed from the SoftBank Vision Fund, which suffered net unrealised valuation losses of 1.9 trillion yen.

SoftBank said the fair values of Uber Technologies, WeWork and affiliates of the shared workspace company decreased during the period. It also said the total fair value of other portfolio companies decreased significantly in the fourth quarter, primarily due to the impact of the outbreak of Covid-19.

SoftBank shares closed at 4,621 yen on May 18, 1 per cent higher than the closing price of the previous trading session.

REUTERS