SoftBank Group (TYO: 9984) is determined to push ahead with its YEN 4.5 trillion (USD 41 billion) asset sale program as originally planned despite the coronavirus wreaking havoc on markets and Prime Minister Shinzo Abe this week declaring the first state of emergency in Japan’s postwar history.
“We made this decision [on asset sales] after the novel coronavirus was taking hold,” Yoshimitsu Goto, chief financial officer of SoftBank Group, told the Nikkei Asian Review on Thursday. The company announced on March 23 the substantial disposal of assets to be “executed over the next four quarters,” but financial markets around the globe have been shaken even further since then as the pandemic worsens.
Goto, however, rejected speculation about any changes to the program, including its self-imposed deadline. An extension, according to him, is “basically not in the cards. … We have a scenario in place and will firmly execute it in this environment.”
However, he refrained from making any comments on the composition of the sales package, including whether it would include shares in Alibaba Group Holding (NYSE: BABA), which consists over half of the group’s YEN 27 trillion portfolio. Despite the possibility of disposal, Alibaba shares listed in Hong Kong have risen by 5% since SoftBank’s announcement until the close on Thursday. Many analysts also expect SoftBank Corp., the group’s Japanese mobile unit, and Sprint, the US carrier that recently merged with T-Mobile, to be among the candidates for the sale.
Among the proceeds of the asset sale, YEN 2 trillion is earmarked for share buybacks, on top of YEN 500 billion previously committed on March 13. The rest will be used to payoff debts and buy back its bonds.
About 600 million shares will be purchased if Thursday’s closing price of YEN 4,138 is assumed. That would push up Chairman and CEO Masayoshi Son’s shareholdings — including shares owned indirectly through asset management vehicles — to around 38% from 26% as of March 27, the latest filing date of his large-volume holdings report to the finance ministry.
On the potential surge in his boss’ control over the company, Goto said, “For people purchasing our shares, Son’s leadership aspect is part of it.”
The company has remained firmly under Son’s control since its founding in 1981, even after its listing in 1994. His charismatic leadership has been a major factor in its growth, to the point that it has been included in the risk factor section of its annual reports over more than a decade. The latest report reads: “Unforeseen situations concerning key members of management-especially Chairman and CEO of SBG and Group Representative Masayoshi Son-could impede the Group’s business activities.”
But Son’s aggressive deal-making has come under intense scrutiny in recent months after the group suffered a large loss on its investment in US coworking space operator WeWork — and then continued to support the company by announcing an additional USD 9.5 billion investment. As concerns over another WeWork-type loss loomed, Son publicly acknowledged that Goto had urged him to declare there will be no more “rescue investments” of loss-making companies.
Nevertheless, Elliott Management, the American activist hedge fund seen as triggering the substantial asset sales and share buybacks, has also been demanding reform in the Japanese company’s governance. Goto, however, brushed off any concerns regarding Son tightening his grip on ownership. “Rather, the risk is when Son’s ownership declines. I reckon that is what our investors are concerned about.”
SoftBank would not be the first Asian conglomerate to increase the shareholding of its founder in order to reassure nervous investors.
CK Asset Holdings and CK Hutchison Holdings announced on Tuesday that Li Ka-shing, the founder of the two Hong Kong conglomerates, recently bought additional shares in the two companies on the open market through a vehicle co-owned with his son Victor Li Tzar-kuoi, who officially took over from his father in 2018. The elder Li now owns 34.48% of CK Asset and 30.14% of CK Hutchison. Li has often made such moves to indicate his confidence to investors whenever his flagship companies’ share prices have come under stress.
SoftBank Group’s asset sale and share buyback program triggered an almost instant two-notch downgrade by Moody’s, which considered the move to be a reflection of the company’s “aggressive financial policy.” One of the concerns raised by the rating agency was the timing, as asset sales “will be challenging in the current financial market downturn, with valuations falling and a flight to quality,” Motoki Yanase, its senior credit officer based in Tokyo, said at the time. The agency placed the company’s rating on review for a further downgrade.
SoftBank Group demanded on March 25 that Moody’s withdraw its ratings, to “avoid confusion in the market based on what we believe to be a misunderstanding.”
S&P Global Ratings indicated a more positive view on the planned asset sale, saying it “would reduce downward pressure on credit quality,” in its report on March 24. However, the agency also raised concern over the timing, saying “there remains considerable uncertainty over whether the asset sale can be completed and debt reduced as planned should stock markets remain highly volatile,” in the same report.