Time for SoftBank to Consider That Vision Fund IPO

(Bloomberg Opinion) -- SoftBank Group Corp.’s flagship, $98.6 billion Vision Fund is almost tapped out. Its holdings of unicorn startups aren’t likely to deliver cash to investors anytime soon.

Yet SoftBank needs liquidity, and there’s talk that the Saudi government’s Public Investment Fund may be looking to monetize its stake through a margin loan. (The PIF denied a Bloomberg News report that it has such plans).

An answer to both problems would be to list shares in the Vision Fund itself, a topic that has been given scant regard as people focus on the underlying investments.

Hear me out, though.

The fund’s two biggest holdings right now are Chinese content-platform Bytedance Inc. and ride-hailing leader Didi Chuxing. There’s slim chance that either will have an initial public offering this year, and probably not in the U.S., where the mood toward Chinese companies has soured after the Luckin Coffee Inc. scandal. Too bad for them: All the dollars printed by Washington to tackle the Covid-19 economic crisis might mean there’s plenty of money sitting around waiting for a big new share sale.

Of the 88 investments in the Vision Fund’s portfolio, 50 had a cut in valuation during the 12 months to March 31, and 19 were unchanged. SoftBank told investors Monday that its startups are facing varying degrees of impact from the pandemic, which means it’s probably not an opportune time to try to sell any individual company in public markets.But as a collective, the portfolio makes as good an asset as anything else SoftBank has on hand.

It’s possible that SoftBank will be able to offload some of the T-Mobile US Inc. shares that replaced its stake in Sprint Corp. after the operators merged. According to the Wall Street Journal, T-Mobile’s parent, Deutsche Telekom AG, is considering a purchase. But there are various lockup clauses and share price incentives built into the deal that probably limit the size of any such transaction.

I talked before about the need for SoftBank to sell down its $137 billion stake in Alibaba Group Holding Ltd. after it said that it would monetize as much as $41 billion in assets. Let’s be clear: “Monetizing” doesn’t necessarily mean selling. SoftBank’s strategy has largely been to take out loans backed by its assets, some of which are non-recourse.(1)

There’s also British semiconductor maker Arm, which we already know is slated for an eventual IPO. The current state of SoftBank’s finances make it likely this listing will be fast-tracked.

But these holdings — T-Mobile, Alibaba, Arm(2) — are SoftBank assets. Selling them doesn’t necessarily solve the Vision Fund’s cash needs. And they don’t much help the fund’s sugar daddy, the Saudi government.

As my colleague David Fickling wrote recently, the net financial assets held by Saudi Arabia’s government have declined to just 0.1% of gross domestic product, from 50% in the four years through 2018. Being one of the world’s biggest oil producers helps only so much when a global pandemic grounds aircraft, sends economies into decline, and results in sliding crude prices. Even if the PIF denies plans to take out loans against its Vision Fund stake, the kingdom’s rulers will be keen that it raise cash any way possible.

The Vision Fund itself needs money. It’s on the hook for at least $3 billion in preferred equity dividend payments every year, as well as the cash it needs just to operate, and in theory to service debt it’s already taken out. It has already put some of the money raised aside to pay those dividends, but that won't last forever. With the book value of its assets dropping more than $17 billion in the past year, the fund’s ability to keep borrowing to cover those requirements will diminish.

There are bound to be investors who believe in founder Masayoshi Son’s long-term plan to build a stable of companies that will change the world and provide huge profits in the process. After all, many have already bought into SoftBank Group itself, which counts the Vision Fund as a key earnings driver (or drag).

Given how illiquid the assets are, and the volatile nature of its earnings, a listing of the Vision Fund would certainly be seen as a bizarre move. But to Son and his acolytes, it may well be seen as visionary.

(1) Non-recourse means that if the debt can't be paid, or other clauses are triggered, the creditor may take ownership of the pledged asset rather than forcing the debtor to pay up.

(2) A portion of Arm shares are held by the Vision Fund, transferred from SoftBank as an in-kind payment to cover SB's obligations to the Fund.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.

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