SoftBank to cut China investments until tech sector calms

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SoftBank’s bets on an increasingly uncertain Chinese technology market have become the prime focus for shareholders as Masayoshi Son’s investment conglomerate reported a sharp drop in quarterly net profits.

While listings of its portfolio companies helped the Japanese group’s flagship Vision Fund post a profit, the $100bn vehicle took a $6.3bn hit on nine of its investments due mainly to a drop in value of South Korean ecommerce group Coupang.

Despite the headline setback in the April to June quarter, which was partly down to asset sales in the same period a year ago, Navneet Govil, finance chief of the Vision Fund, told the Financial Times that its investment strategy remained unchanged in China despite a regulatory crackdown on ride-sharing group Didi Chuxing and other companies it has backed.

“Our investment thesis with respect to China remains unchanged,” said Govil. However, he acknowledged that the fund’s expectations on investment returns have been adjusted. “Ultimately there is a lot of innovation to occur in China.”

For the quarter, SoftBank’s net profit fell 39 per cent year on year to ¥761.51bn ($6.9bn). The same period a year ago was boosted by gains related to the June 2020 sale of the company’s stake in US carrier T-Mobile following its merger with Sprint.

SoftBank’s net profit figure was above analysts’ forecasts of a net loss of ¥11.8bn, according to S&P Global Market Intelligence. But the result was a sharp reversal from a record profit of ¥1.93tn in the first three months of 2021 following the US listing of Coupang.

The second $40bn Vision Fund, the sequel to the Saudi-backed $100bn fund, continued to increase its investments during the three months. It deployed $14.2bn in 47 groups, bringing its total investment portfolio to 161 companies.

The listings of seven companies including Didi and Chinese commercial freight company Full Truck Alliance led to unrealised quarterly gains of $5.8bn for the Vision Fund. But much of that has been wiped out since July due to the regulatory pressures in China. 

Didi’s shares have fallen by a third since it listed its shares in New York at the end of June. Full Truck Alliance’s stock has dropped 37 per cent since its June 23 IPO in the US. Online education start-up Zuoyebang has also been hit by tough restrictions China has introduced on the home tutoring sector.

Govil said that while the fund expected some slowdown in Chinese listings, he expected that to be offset by IPOs in India and the US. “Fortunately we have a very diverse and large portfolio. We expect this momentum to continue,” he said.

Still, the group has pared its investments in publicly traded US tech stocks made mainly via its asset management arm SB Northstar as it offloaded its stakes in Microsoft, Facebook and Alphabet. As of the end of June, the group’s investment in listed shares fell to $13.6bn, from $20bn in the previous quarter, even as it reported ¥210bn in gains from such trades.

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