
SoftBank Group Corp’s prolific spending on startups and listed companies underpins founder Masayoshi Son’s entire strategy, driving both earnings and share price. But such massive outlays have forced its balance sheet into a hole that suggests the only way out is to start selling.
Net income at the Japanese company dropped 39% for the June quarter, while profit at its eponymous investment unit plunged almost 90% amid a decline in the share prices of key
holdings like ride-hailing provider Uber Technologies Inc and e-commerce company Coupang Inc. Such swings have become a normal feature of SoftBank’s earnings as it rides the peaks and troughs of stock market and startup valuations.
Another key metric of its financial position has plunged to the lowest level in almost three years, and it’s one that can’t be papered over by a rebound in share prices. SoftBank’s current ratio — which measures current assets divided by current liabilities — fell to 0.78. A figure less than one implies that more money is due than the amount of liquid assets currently available. The assets side of this equation largely comprises cash and accounts payable, which dropped, while the debts are chiefly loans and bonds to be paid within the next 12 months, and they rose.
Among the recent expenses was $919 million on new shares in The We Co (better known as WeWork) — the troubled rental startup that almost collapsed two years ago before a SoftBank bailout. The company also put $800 million into its new Latin America Fund, part of plans to find new growth outside of Asia. To pay for these deals, though, the firm once again dipped into its Alibaba Group Holding Ltd piggy bank to take out a $1.88 billion margin loan, using its shares in the Chinese e-commerce startup as collateral.
This past year has not been an opportune time to use Chinese tech companies as backing for loans. Alibaba is among peers caught up in a series of crackdowns over concerns ranging from data protection to antitrust breaches, driving its stock down almost 40% from a high in October.
SoftBank’s cash position is further pressured by the increasing likelihood that its $40 billion sale of British chip designer Arm Ltd
to Nvidia Corp will fall through, with even the
UK government concerned about the transfer. Failure, or even a delay, of that deal could be a huge blow. The US maker of graphics chips is set to cover $12 billion of its purchase in cash.
—Bloomberg