SoftBank bankruptcy crisis? Calculating shareholder value after the stock price crash.
Hello, this is Kaoyama.
“SoftBank insolvency crisis”
On the internet more and more people have been hearing this phrase
lately.
Regarding SoftBank Group,
whenever negative coverage appears,
you can often hear voices like
“A company that doesn’t pay taxes should just go bankrupt.”
Amidst this, last week SoftBank Group
announced the forecast for the period from April 1, 2019 to March 31, 2020
“a deficit of 1.35 trillion yen.”
※Reference: SoftBank Group press release
↓
https://group.softbank/system/files/news/ja/press/2020/20200413/pdf/20200413.pdf
After the release, SoftBank Group’s stock price
did not continue to fall, which suggests...
the market had already priced it in,
as one might expect.
That said, in terms of amount,
it is a巨額 (massive) deficit that could make one think
“SoftBank is heading toward bankruptcy.”It wouldn’t be surprising to think so.
What is SoftBank Group actually facing?
To what extent is it in real danger?
Could bankruptcy really happen?
Let’s explore.
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Which 기준 (criteria) should we use to judge SoftBank G?
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SoftBank G, what is going on inside?
It’s really confusing, isn’t it?
“As a telecommunications company like SoftBank,
the Vision Fund,
and various other aspects make the reality hard to see.”
Many people likely feel this.
So, from which perspective should we view SoftBank G?
First, we must clarify that point.
From different angles, it may appear completely different, butPresident Son’s claim is
“Please look at the shareholder value.”
Shareholder value means
the value of the held shares
minus the debt that SoftBank G bears.
“In any case, look at how much value the SoftBank G stock has.
Whether the invested companies earned or lost has
no relation to SoftBank G’s performance.”
This is Son’s claim.
Indeed, as an investment company,
if you evaluate SoftBank G,
as Son says, it is reasonable to view it by
“shareholder value.”Shareholder value.
For a stock trader,
the value of the shares you hold
is the most important, isn’t it?
Now, what happens when SoftBank G is viewed through “shareholder value”?
What happened at the February earnings briefing?
The following numbers were introduced at the February earnings briefing:
【Value of Holdings】
Alibaba: 16.1 trillion yen
SoftBank KK: 4.8 trillion yen
Sprint: 3.2 trillion yen
arm: 2.7 trillion yen
SVF (SoftBank Vision Fund): 3.2 trillion yen
Others: 1.1 trillion yen
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Total: 31 trillion yen
(FY2020 March Quarter Q3 briefing materials)
https://group.softbank/system/files/pdf/ir/presentations/2020/softbank_presentation_2020_003.pdf）
The value of SoftBank G’s holdings“share value” is 31 trillion yen.
More than half is Alibaba stock.
And from that 31 trillion yen
subtract SoftBank G’s net interest-bearing debt of 6 trillion yen.
As a result, 31 - 6 = 25 trillion yen.
Thus, the value of the company SoftBank G is
25 trillion yen.
This figure was disclosed at the February earnings briefing where Son spoke proudly,
“Compared to the September 30, 2019 earnings, shareholder value has increased by 5 trillion yen.”
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What about shareholder value after the stock crash?
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As you know,
at the time of the February earnings, the stock price was relatively stable.
Then, as we moved into March,
the stock price plunged,
so it’s likely that shareholder valuehas fallen considerably,
but what is the actual situation?
Let’s estimate roughly based on the latest stock prices.
As of April 16, when I’m writing this newsletter,
Alibaba’s stock price is $212.
On February 12 it was $224,
fell until the end of March,
and by April 16 it had recovered to $212.
SoftBank KK’s stock price was 1,500 yen on Feb 12,
and by April 16 it fell to 1,396 yen.
Sprint is at 8.6 dollars,
hardly changed.
Vision Fund
about 1.8 trillion yen in investment losses expected.
(SoftBank G’s stake about 30%)
(Reference:
https://group.softbank/system/files/news/ja/press/2020/20200413/pdf/20200413.pdf）
Taking these into account, a rough calculation yields
the following.
【Value of Holdings】
Alibaba: 16.1 trillion yen → 15.24 trillion yen
SoftBank KK: 4.8 trillion yen → 4.5 trillion yen
Sprint: 3.2 trillion yen
arm: 2.7 trillion yen
SVF (SoftBank Vision Fund): 3.2 trillion yen → 2.6 trillion yen
Others: 1.1 trillion yen
This is a rough calculation, but
the value of SoftBank G’s stock holdings
has, from Feb 12, 2020 to Apr 15,
decreased by about 1.8 trillion yen in total,
as a rough figure.
From September last year to February this year it rose by 5 trillion,
and by April it fell by 1.8 trillion,
showing very volatile ups and downs.
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Son’s
Is the CEO in big trouble borrowing with stock as collateral?
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With all this in mind,
what do you think about the possibility of bankruptcy?
Alibaba’s stock has recovered as well,
so we shouldn’t expect SoftBank Group to go bankrupt soon.
Issues such as the U.S. WeWork lawsuit,
OneWeb’s bankruptcy,
Vision Fund 2’s freezing,
and other negative news
continue to be reported, making it hard to be optimistic.
However, for SoftBank G right now,
the biggest impact is ultimately
Alibaba’s stock movements.
SoftBank G is, for better or worse,
dependent on Alibaba.
Alibaba is like a Chinese version of Amazon,
and with the spread of the coronavirus,
online shopping is expanding demand,
so there is a possibility it will continue to grow.
As long as Alibaba remains solid, it is hard to imagine SoftBank G bankruptcy as some claim.
By the way, since Son borrows with SoftBank G stock as collateral,
some say that
“Son himself would be in big trouble if SoftBank G’s stock fell.”
According to Bloomberg,
the collateral is about 40% of Son’s own SoftBank G stock holdings,
and besides SoftBank G stock,
he possesses assets worth 12 billion dollars.
(Reference: Bloomberg
https://www.bloomberg.co.jp/news/articles/2020-03-27/Q7UMMMDWX2Q001）
There is still room.
Of course Son is aging,
and in that sense
anything could happen at any time.
However, for anti-SoftBank G followers,
this may be unwelcome news, but
based on the data, Son himself
is not in a dangerous state that would collapse immediately.
“1.35 trillion yen deficit forecast”
and
“Vision Fund with an expected investment loss of about 1.8 trillion yen”
are concerns,
and one might understandably think, “Is everything okay?”
I get that feeling, too.
All information should not be taken at face valueand you should try to assess it yourself as much as possible.
When trading stocks,
this is extremely important.
Now, thank you for viewing today until the end.
- Keizo Shimoyama
