SoftBank Fund Takes Extra Risk -- WSJ

By Mayumi Negishi Features Dow Jones Newswires

Filings offer clues into the workings of the Japanese group's new investment vehicle

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This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 11, 2017).

TOKYO -- Filings by SoftBank Group Corp. show it has taken on outsize risk in its new SoftBank Vision Fund, which has said it would have at least $93 billion to put into big technology bets.

SoftBank's quarterly earnings report and balance sheet as of June 30, released Monday, offer clues into the workings of the fund, which is led by SoftBank Chief Executive Masayoshi Son. Investors include the government funds of Saudi Arabia and Abu Dhabi, as well as Apple Inc. and other tech companies.

The fund has already lined up multibillion-dollar investments in British chip architect ARM Holdings Inc., graphics-chip designer Nvidia Corp., and shared-office-space firm WeWork Cos.

This week, it announced a $1.1 billion investment in pharmaceutical developer Roivant Sciences Ltd. and, on Thursday, an investment in India's e-commerce leader, Flipkart Ltd.

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The Vision Fund hasn't outlined in detail how the investors will share the risks and rewards of its investments. But there is a hint in the earnings report because the assets and liabilities of the Vision Fund are included on SoftBank's books.

The earnings report says SoftBank recorded a Yen105 billion ($954.5 million) gain in the value of assets that are set to be transferred to the Vision Fund from SoftBank. It says Yen44 billion of that gain, or 41%, belonged to third parties, not SoftBank itself.

The report doesn't say as of what date those calculations were made, but it suggests that at least at one point SoftBank was in position to get 59% of any gains the Vision Fund achieved.

SoftBank representatives declined to say whether the situation has changed or could be affected by new contributions from the partners.

The figures in the earnings report are in line with a Wall Street Journal article in May, which said SoftBank would take around half the equity in the Vision Fund. The article reported that $39 billion of the $93 billion in investment commitments would go into preferred instruments that earn yearly payouts and whose upside is limited.

The fund has said it hopes to line up an additional $7 billion in commitments by the end of the year to bring the total war chest to $100 billion or more.

SoftBank has said it is committing $28 billion of that $100 billion, but the earnings report is the first official sign that it could be taking on more risk and could see greater upside than that 28% portion might suggest.

The exposure to the Vision Fund had an impact on SoftBank's April-June quarterly earnings, the first to reflect the fund's establishment. Thanks to a rise in Nvidia's share price, SoftBank's quarterly operating profit rose 50% from the year-earlier level.

Mr. Son said Monday that the SoftBank stake in Nvidia, which it has agreed to transfer to the Vision Fund, represents 4.9% of Nvidia's total shares. The stake was valued at Yen483.3 billion on SoftBank's balance sheet as of June 30.

Mr. Son told analysts and reporters that the Vision Fund's aim was to create a community of technology companies that can find ways to work together.

"We do not want to take majority ownership, neither are we investing purely for profit," he said.

Because of the fund's size, it is already lifting valuations and encouraging startups to hold off from listing shares. "SoftBank is investing in later-stage companies and telling them to grow faster with the money," said Macquarie Capital analyst David Gibson. "The big get bigger faster, and hence are potentially winners longer term."

Write to Mayumi Negishi at mayumi.negishi@wsj.com

(END) Dow Jones Newswires

August 11, 2017 02:47 ET (06:47 GMT)