SoftBank Group Corp plans to make future large-scale investments via an upcoming $100bn tech fund it is establishing rather than on its own to avoid growing already bloated debt at the Japanese telecoms and technology company.
Founder and CEO Masayoshi Son is steering SoftBank, a diverse company that holds stakes in US carrier Sprint, Chinese e-commerce giant Alibaba and other firms, towards cutting-edge tech investments as the telecoms services markets mature, saying he aims to make the firm the “Berkshire Hathaway of the tech industry”.
As part of that gameplan, SoftBank bought UK chip designer ARM Holdings, Britain’s most valuable technology company, for $32bn this year, and announced with Saudi Arabia the planned creation of an investment fund that could grow up to $100bn.
Some of SoftBank’s moves have caused concern among analysts, as it is wrestling with a ¥13.7tn ($131bn) debt pile. Son said at an earnings briefing yesterday that future investments exceeding “several tens of billions of yen” will be made through the tech fund to avoid a further expansion of SoftBank’s debt.
“Our investments were previously confined to our balance sheet,” Son said. “By creating the new fund, we would be better positioned to leverage the coming opportunities.” SoftBank’s leverage multiple is expected to drop to 3.5 from the current 4 within “several years”, backed by the company’s domestic telecommunications business which is expected to generate annual cash flow of about ¥600bn, he said.
The ARM acquisition is the beginning of the company’s transformation, Son said, adding he is “aiming to become a Warren Buffett in the tech industry”. Billionaire Buffett runs conglomerate Berkshire. SoftBank expects to invest over the next five years at least $25bn in the tech fund, which would be one of the world’s largest private equity investors and a potential kingpin in the technology industry.
Yesterday, SoftBank reported a 6.8% rise in second-quarter operating profit to ¥335bn, thanks to a strong showing by the cash-cow domestic telecommunications business.
That compared with a ¥287bn average estimate from two analysts, according to Thomson Reuters Starmine.
Sprint, owned 83% by SoftBank and a long-time drag on SoftBank’s earnings, is also showing signs of improvement.
It reported a return to operating profit in the latest quarter, strong net additions in postpaid phone subscribers and a record-low cancellation rate.
Sprint also raised the full-year outlook for operating profit.
“Sprint was a drag on the group’s earnings, but I’m confident that it will be the biggest contributor to our profit growth,” Son said.