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SoftBank's asset sales, COVID-19 portfolio hit to rattle Vision Fund 2 investors

SoftBank Group Corp.'s latest efforts to pay down debt and stem portfolio company losses amid the coronavirus crisis are unlikely to be enough to attract outside investment for its upcoming second Vision Fund, experts told S&P Global Market Intelligence.

The Japanese conglomerate said March 23 it will sell up to ¥4.5 trillion of assets over the next year to reduce debt and increase cash reserves. The company will also repurchase up to ¥2 trillion of common stock, in addition to a previously announced buyback of 145 million shares. SoftBank did not disclose which assets it would sell, but reports have focused on its stake in Chinese internet group Alibaba Group Holding Ltd.

SoftBank Group's share price approximately halved in March as a market downturn caused by the coronavirus pandemic hit companies in the Vision Fund.

"In this environment, investors are bearish on the private equity efforts by SoftBank, so talking up [its Vision Fund 2] is probably not a good idea right now" as there is "little chance" that outside investors are interested in the fund at this point, Kirk Boodry, tech analyst at Redex Holdings, said.

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Of the listed companies in SoftBank's portfolio, only clinical-stage immunology company Vir Biotechnology Inc. and Slack Technologies Inc. have seen their share prices rise in 2020, according to data compiled by S&P Global Market Intelligence. Uber Technologies Inc. and biotechnology company 10x Genomics Inc. saw the greatest share price declines at 20.4% and 21.7% respectively.

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Prior to the outbreak, SoftBank's Vision Fund was under heavy scrutiny due to last year's WeWork IPO failure, and Uber's and Slack's plummeting stocks. In the quarter to Dec. 31, 2019, SoftBank Vision Fund and other SoftBank-managed funds reported a ¥225.12 billion loss, compared to a profit of ¥176.36 billion in the prior-year period.

U.K.-based satellite company OneWeb Ltd., of which SoftBank owned about 40%, recently filed for bankruptcy. Another holding, Indian hotel group OYO, is reportedly about to make significant cuts to its China operations after suffering losses there due to the pandemic.

The overall downturn in markets due to the coronavirus coupled with the large decline in oil prices will, in particular, deter Saudi Arabia's sovereign wealth fund, one of SoftBank Vision Fund's biggest investors, from investing in Vision Fund 2, said Olamide Ajibesin, managing director of transaction advisory services practice at Anchin Block & Anchin LLP. Oil prices dropped more than 6% to an 18-year low last week due to dampened global demand.

Ajibesin added that the risk and impact of the virus have not made the current market conditions "high-multiple-friendly." This could mean SoftBank's assets will sell at a discount, and that it would have less cash, and ultimately this would affect investors' confidence in Vision Fund 2.

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The second fund was first announced in July 2019, with Apple Inc., Microsoft Corp., Foxconn Technology, Mizuho Bank, Standard Chartered Bank and the Kazakhstan sovereign wealth fund among expected investors. The fund generated about US$108 billion in pledges.

The timing of the fund's launch is also likely to be impacted by the coronavirus, the experts said. In February, SoftBank CEO Masayoshi Son said Vision Fund 2 was "about to start" despite concern and "a lot of feedback" from potential investors.

Boodry said that with the focus on buying back stock and reducing debt, a big injection of cash for Vision Fund 2 "would be taken negatively" by SoftBank investors. The company committed US$38 billion to the fund.

"We are already seeing some slowdown in deal-making due to the virus ... the [recent announcement of] transactions, including the asset sale timeline of one year, could also be delayed, and this could delay the Vision Fund 2 launch," Ajibesin added.

As of April 6, US$1 was equivalent to ¥109.02.