The investment mad Son Masayoshi has a new goal and sends ARM to the United States to list.
During the ARM sprint U.S. stock IPO, SoftBank, founded by Masayoshi Son, encountered a new test, and S&P downgraded SoftBank's long-term credit rating to "junk", which caused SoftBank's stock price to fall, and SoftBank seemed to passively accept this result.
The feat of investing in Alibaba more than 20 years ago made SoftBank a lot of money, and it also made Son directly canonized the global investment market. However, after the Vision Fund's portfolio failed, reducing its holdings of Alibaba shares to cash out became a "lifesaver" for SoftBank to resolve the crisis.
Now, Son hopes to pay off debts through the ARM listing, while helping SoftBank win a "turnaround battle". However, it is still unknown whether ARM, which Son is betting on, can bring him and SoftBank back to the top.
One
A war of words between S&P and SoftBank has successfully attracted the attention of the global investment market.
The reason for this is that S&P recently downgraded SoftBank's long-term credit rating by one notch from the original BB+ to BB. Both of these levels are non-investment grade, and the outside world calls SoftBank's situation "further downward adjustment in the junk level".
S&P said SoftBank's credit risk is rising as it sells assets of public companies such as Alibaba and increases investments in private start-ups with more volatile valuations.
According to the latest financial report released this month, due to the investment loss of its Vision Fund, SoftBank's net loss in fiscal 2022 as of the end of March this year was about 970 billion yen (about 49 billion yuan), which is also the second consecutive year that SoftBank has experienced a net loss.
S&P wrote in a note: "Asset risk in SoftBank's portfolio has risen more than we expected. Over the next year or so, the group's liquidity and credibility are likely to continue to be significantly eroded. ”
SoftBank shares closed down 2.36% the next day, and its credit default swap (the cost of insuring SoftBank's debt) posted its biggest gain in about a month.
For this result, SoftBank is obviously unacceptable. SoftBank criticized S&P's decision to downgrade its long-term credit rating, arguing that the rating agency failed to accurately analyze its situation. SoftBank said selling assets such as Alibaba in exchange for cash is clearly more conducive to the stability of its balance sheet.
SoftBank said in a statement: "Over the past year, our disciplined defensive financial management has strengthened our financial position like never before. It is very regrettable that our financial soundness has not been properly assessed. We will continue our dialogue with S&P. ”
After being downgraded, SoftBank CFO Yoshimitsu Goto said the downgrade would not affect SoftBank's borrowing costs or the way it manages its balance sheet. He also said that given that the group has more than 5 trillion yen in sufficient cash reserves, it does not need to issue new bonds for the time being.
Goto said SoftBank still needs to refinance about 350 billion yen worth of bonds sold to retail investors, which mature in the third quarter of next year. He said only time will know where yields will move at that time, but the coupon rate on bonds sold by SoftBank to retail investors is tied to the ratings of Japanese credit rating agencies, not S&P's.
It is worth mentioning that this is not the first time that SoftBank has had a dispute with a credit rating company. SoftBank and Moody's have been arguing for years and have not provided information to Moody's since March 2020. Goto said: "We have always respected S&P. It's bad that they came to such unreasonable conclusions. ”
In the short term, in this master showdown, SoftBank seems to have lost the battle, and can only passively accept this result. It is difficult to conclude how the situation will develop in the future, so we may as well watch as we go.
Two
SoftBank's current situation is closely related to founder Masayoshi Son. Over the years, Son has been known for his aggressive investment style, known as the "investment maniac".
Son said of himself: "I am an aggressive person, not a defensive person. Ma Yun also bluntly said that Son Masayoshi is the most daring person he has ever seen in the investment field, as long as he sees the direction, he dares to all in.
There is a legend widely circulated in investment circles: around 2000, in order to finance Alibaba, Ma Yun ran to Beijing to meet Son, and the two chatted for only 6 minutes, Ma Yun got 20 million US dollars in investment, and Alibaba survived.
Ten years later, Alibaba was successfully listed on the New York Stock Exchange in the United States, gaining crazy pursuit from global funds, and its stock price soared, bringing more than 3,000 times the return to Son and making Son directly confiscate in the global investment circle.
Perhaps Son's experience of successfully investing in Alibaba has boosted Son's confidence and made him particularly fond of tech startups. In May 2017, under the leadership of Masayoshi Son, the first phase of the SoftBank Vision Fund was officially launched, with a total scale of up to $100 billion, and the investment target was a global unicorn in the technology field.
In the following three years, the SoftBank Vision Fund invested a total of about $70 billion and invested in 88 entrepreneurial projects, sweeping almost all kinds of technology unicorns around the world, including Didi Chuxing, Uber, OYO, Wework and many other sharing economy companies.
Son and his Vision Fund changed the rules of the game with money, they were willing to give high valuations, dared to give high valuations, and directly invested in their competitors if they did not invest. Such a fierce style of play has allowed Son Masayoshi and the Vision Fund to cover almost all the world's well-known unicorns in the field of science and technology, and it has also laid the groundwork for future changes.
The Vision Fund, which is invincible in the global market, is the "culprit" that caused SoftBank to lose money. In fiscal 2021, SoftBank suffered a net loss of 1.7 trillion yen (about 89.9 billion yuan) and the Vision Fund lost 2.64 trillion yen (about 139.7 billion yuan), both setting record losses.
The reason for this is the sharp decline in the share price/valuation of the Vision Fund's portfolio, including US food delivery company Doordash, Southeast Asian ride-hailing company GoTo, Korean version of "Alibaba" Coupang, Shell Housing, Wework, SenseTime and so on.
Son said bluntly: "From the current situation, whether it is the primary market or the secondary market, almost all the investments we have made have not performed well. "Listed and unlisted stocks are nearing total annihilation, and the Vision Fund has clearly taken a hit."
As SoftBank continues to lose money on investments in tech startups, Son personally owes SoftBank nearly $5 billion. As a result, SoftBank's market value has shrunk sharply more than in any year in the past 20 years.
After that, Son solemnly announced that he would no longer attend SoftBank's earnings conference in the future, and handed over the day-to-day management of the group to CFO Yoshimitsu Goto and other executives. This is the first time in SoftBank's history.
In order to cover the losses, SoftBank began a series of cash-out operations. In 2022, SoftBank sold about 389 million Alibaba shares, cashing out a total of about US$29 billion (about 203 billion yuan), which led to its stake holding less than 15% of the nominee director, and Son stepped down from Alibaba's board.
It is worth noting that over the past year, SoftBank has sold Alibaba shares at an average price of only $92 per share, which is not only far below Alibaba's all-time high of $319 per share, but even below Alibaba's closing price of $93.89 on the day of its listing in 2014.
Not long ago, SoftBank sold about $7.2 billion of Alibaba shares by prepaying forward contracts. After the round of sell-offs, SoftBank significantly reduced its 35% stake in Alibaba from its peak to 3.8%, and SoftBank sold Alibaba shares that had been held for 20 years with a "liquidation reduction", which shows that it is really short of money.
Three
After withdrawing from SoftBank, Son did not bid farewell to the investment stage completely, but focused on the IPO of chip company ARM, hoping that through the listing of ARM, not only to pay off debts, but also to turn SoftBank over again.
The mention of ARM is another gamble in Son's investment history. In July 2016, under the leadership of Son, SoftBank invested 24.3 billion pounds (about $32 billion) in cash to buy British semiconductor chip maker ARM, a 43% premium to ARM's previous closing price.
In order to raise acquisition funds and successfully acquire ARM, SoftBank not only sold a number of high-quality assets, including Alibaba, but even went into debt at any cost. Son's big operation has stirred up the global chip market, and Son's adventurous spirit has made peers shudder, and the outside world has called this acquisition a "desperate gamble".
What is so remarkable about ARM, which can make Son reckless all in? According to public information, ARM, headquartered in Cambridge, UK, provides chip design solutions for hundreds of millions of game consoles, home appliances, and even bank cards, mobile phone cards, and bus cards, and is one of the world's largest chip architecture companies.
In contrast, Intel (Intel) has unlimited popularity in the traditional PC and server field, but in the field of mobile terminal chips, ARM is the leader. Over the years, ARM has gradually threatened Intel's position in the chip industry and is Intel's most troublesome competitor.
Especially in the field of smartphones, ARM is the world's leader. Data show that in 2015, the shipment of chips using the ARM architecture reached 15 billion pieces, accounting for 32% of the entire chip market share. According to market estimates, the proportion of processors using ARM architecture in smartphones may reach 99% in 2015. Without ARM, smartphones might not survive.
At that time, some industry insiders analyzed that Son Masayoshi led SoftBank to buy ARM, the original intention may not be in the current highly advantageous mobile phone market, but ARM's high efficiency and low power consumption architecture, which can become a new hegemon in the market in new fields such as the Internet of Things, smart wear, and network infrastructure.
However, as SoftBank fell into a loss quagmire, it once hoped to sell ARM for $60 billion in order to return the funds. In September 2020, NVIDIA agreed to acquire ARM for $40 billion, which is expected to be the largest acquisition in the global chip industry.
However, because ARM is the world's largest supplier of smartphone chip IP design, the ownership issue involves the global semiconductor industry structure, including Qualcomm and Microsoft, and other large technology companies that rely on ARM chip design are opposed to the acquisition, and the final sale plan was aborted due to regulatory opposition.
After several months of engagement with the UK government and regulators, SoftBank and ARM decided to list on the New York Stock Exchange in 2023, which is the most consistent location for the company's interests. At the same time, the possibility of dual listing on the London Stock Exchange in the UK is basically ruled out.
It is not difficult to see from the above that Son and SoftBank have high hopes for the ARM listing. And whether ARM, which Son is betting on, can bring him and SoftBank back to the top is still unknown.