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SoftBank Bets on Loans for Fund -- WSJ

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08/19/2019 | 02:48am EDT

By Liz Hoffman and Bradley Hope

SoftBank Group is leaning on its employees, including Chief Executive Masayoshi Son, for cash as the firm rushes to raise an ambitious technology fund amid volatile markets.

The Japanese company plans to lend up to $20 billion to its employees to buy stakes in its second giant venture-capital fund, people familiar with the matter said. Mr. Son may account for as much as $15 billion of that amount, some of the people said.

It is an unusual setup that would doubly expose SoftBank to a startup economy that is starting to show cracks.

The window for initial public offerings, which appeared wide open early this year, may be closing as markets tumble and public investors grow weary of unprofitable startups.

At $20 billion, the employee pool would represent nearly a fifth of the money that SoftBank said in July it had lined up for its second Vision Fund, a successor to a $100 billion fund that launched in 2017 and is nearly spent.

Adding in its own contribution to the second fund of $38 billion, SoftBank could make up more than half of the money raised, far more than is typical for a fund sponsor.

A Vision Fund spokesman declined to comment.

SoftBank controls Sprint Corp. and other telecommunications companies. It launched its first fund with $60 billion in backing from government investment funds from Saudi Arabia and Abu Dhabi and quickly roiled the tech market by making huge investments in Uber Technologies Inc., WeWork, Chinese ride-hailing company Didi Chuxing Technology Co. and other companies, helping to drive up their valuations. The funds are supposed to tap the vision of Mr. Son, who has made huge profit on tech investments, and the new effort is expected to be focused on artificial intelligence.

SoftBank said it has $108 billion from investors including Apple Inc., Microsoft Corp., the government of Kazakhstan and half a dozen banks.

Those commitments aren't binding and are being completed during a tumultuous stretch for startups, including some of the Vision Fund's largest investments.

Shares of Uber have fallen 30% since the company went public in May. The stock now trades below the roughly $35 level that SoftBank paid to acquire its stake, people familiar with the matter said.

WeWork, another big Vision Fund investment, filed last week to go public, disclosing losses that are enormous and growing fast, even by Silicon Valley standards.

The company will likely need large sums of cash for years as it builds out offices. This could affect WeWork's most recent $47 billion valuation, which one analyst called "very hard to swallow" in light of the company's huge losses.

Most investment funds simply give their employees a share of the profit as part of their compensation. Investors like to see such skin in the game.

But SoftBank is instead lending to staff -- it has about 400 employees -- to buy those stakes, charging around 5% interest and in most cases requiring little money down, said people familiar with the arrangement, which is likely to be completed in the coming weeks.

It did the same thing for the first fund, which now includes about $8 billion of employee money, those people said. The lending adds leverage to the Vision Fund's already risky investments and, if the fund struggles, would put SoftBank in an awkward position trying to collect from some of its most senior executives and could ultimately lose money.

Much of Mr. Son's wealth is tied up in his shares of SoftBank itself, which he could be forced to sell to repay the loans.

For that reason, loans to top executives must typically be explained to shareholders. The stakes also could be considered compensation, which companies must disclose annually for executives at the level of Mr. Son and Vision Fund CEO Rajeev Misra.

SoftBank executives believe the loans will better align its managers' interests with those of Vision Fund investors because the fund investments can be canceled if someone departs or is found to have done a reckless deal, people familiar with their thinking said.

Other investors in the fund include the government fund of Kazakhstan, which is likely to contribute about $3 billion, people familiar with the matter said.

Banks including Goldman Sachs Group Inc., Standard Chartered PLC and Japan's Mitsubishi UFJ Financial Group Inc. have signaled they are willing to invest several hundred million dollars apiece, which bankers view as a way to get hired on deals and IPOs for Vision Fund's roughly 75 portfolio companies.

SoftBank is negotiating with several pensions and insurers, including in Taiwan, for combined investments it hopes will exceed $30 billion, some of the people said. Taiwan's insurers are searching for higher-yielding investments to help them close the gap between promised payouts for older policies and returns they are getting on investments now.

But large-scale investments could be a stretch for them because Taiwanese regulations only allow them to put a fraction of their assets into riskier investments like venture capital.

--Phred Dvorak contributed to this article.

Write to Liz Hoffman at liz.hoffman@wsj.com and Bradley Hope at bradley.hope@wsj.com

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MITSUBISHI CORP -0.76% 2792.5 End-of-day quote.-5.79%
MITSUBISHI UFJ FINANCIAL GROUP INC -1.00% 566 End-of-day quote.7.22%
SOFTBANK GROUP CORP -1.94% 4599 End-of-day quote.-34.35%
SPRINT CORP -0.74% 6.73 Delayed Quote.15.64%
STANDARD CHARTERED -0.46% 686.8 Delayed Quote.11.64%
UBER TECHNOLOGIES INC -0.09% 34.26 Delayed Quote.0.00%
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Financials (JPY)
Sales 2020 9 738 B
EBIT 2020 1 308 B
Net income 2020 1 431 B
Debt 2020 11 147 B
Yield 2020 0,83%
P/E ratio 2020 6,32x
P/E ratio 2021 14,2x
EV / Sales2020 2,12x
EV / Sales2021 2,23x
Capitalization 9 523 B
Duration : Period :
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Technical analysis trends SOFTBANK GROUP CORP
Short TermMid-TermLong Term
Income Statement Evolution
Mean consensus BUY
Number of Analysts 17
Average target price 7 187,50  JPY
Last Close Price 4 599,00  JPY
Spread / Highest target 130%
Spread / Average Target 56,3%
Spread / Lowest Target 31,6%
EPS Revisions
Masayoshi Son Chairman, President & Chief Executive Officer
Raul Marcelo Claure Chief Operating Officer & Director
Norikazu Oba Manager-Finance & Planning
Tadashi Yanai Independent Outside Director
Ken Miyauchi Representative Director & Vice President
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