|16 August, 2019

SoftBank’s Saudi substitute is a head-scratcher

Saudi and Mubadala could in theory reinvest profits from the first fund to make up the difference

SoftBank Corp. placard is prepared during a ceremony to mark the company's debut on the Tokyo Stock Exchange in Tokyo, Japan December 19, 2018.

SoftBank Corp. placard is prepared during a ceremony to mark the company's debut on the Tokyo Stock Exchange in Tokyo, Japan December 19, 2018.

REUTERS/Issei Kato

LONDON - Masayoshi Son has a Saudi substitute, but it’s not clear who. After unveiling his new $108 billion Vision Fund 2 last month, the SoftBank chief executive implied he could raise that sum even before any contributions from Riyadh’s Public Investment Fund and Abu Dhabi’s Mubadala, which bankrolled the $100 billion Vision Fund 1. With SoftBank providing $38 billion, who’s providing the other $70 billion

Start with banks Mizuho Financial, Sumitomo Mitsui Banking, MUFG Bank, Sumitomo Mitsui Trust and Standard Chartered. They’re probably in it to please Son, a potentially lucrative client. A person familiar with one of the banks said their contribution would be below $1 billion. Even if all the banks went large, they’d be unlikely to cough up more than 5% of Tier 1 capital, since 10% counts as a “large exposure” under international rules, and most of them already do business with SoftBank. On that basis, the most Son could hope for is $18 billion.

Next are Daiwa Securities and SMBC Nikko Securities, who together have long-term investment assets worth about $6 billion, and Dai-ichi Life Insurance. Assume the brokers would hand Son no more than 10% of their balance sheet investment assets, and that the insurer might proffer 10% of its equity security portfolio. That’s at most another $5 billion.

That leaves $48 billion of Son’s $70 billion target for Apple, Microsoft, Foxconn Technology, the National Investment Corporation of National Bank of Kazakhstan and "major participants from Taiwan". The Kazakhstani fund, which has $110 billion of assets according to SWFI data, seems unlikely to make up the balance since it earmarked $3 billion for alternative assets this year, according to Reuters. Corporate offerings may also disappoint: Microsoft’s contribution will probably be lower than the $5 billion SoftBank initially wanted, the Financial Times reported, while Apple and Foxconn were two of four companies who on average coughed up slightly over $1 billion each for the first fund.

Unless one of the sponsors unexpectedly shoots the lights out, that leaves SoftBank potentially tens of billions of dollars short of its $70 billion target. Saudi and Mubadala could in theory reinvest profits from the first fund to make up the difference. But that would leave Son once more relying on the Gulf for financial firepower.

CONTEXT NEWS

- SoftBank on July 26 announced it is setting up Vision Fund 2, a $108 billion sequel to its earlier $100 billion private fund launched in 2017.

- The Japanese telecom and investment group intends to put in $38 billion of its own money, and has memoranda of understanding with other investors including U.S. smartphone maker Apple, Taiwanese telecom hardware manufacturer Foxconn Technology, and software firm Microsoft.

- Other contributors named in the announcement include Mizuho Bank, Sumitomo Mitsui Banking, MUFG Bank, Dai-ichi Life Insurance, Sumitomo Mitsui Trust, SMBC Nikko Securities, Daiwa Securities, National Investment Corporation of National Bank of Kazakhstan, Standard Chartered and unnamed Taiwanese investors.

- SoftBank Chairman and Chief Executive Masayoshi Son said on Aug. 7 that the $108 billion does not include investors yet to sign a memorandum of understanding.

(Editing by George Hay and Karen Kwok) ((liam.proud@thomsonreuters.com; Reuters Messaging: liam.ward-proud.thomsonreuters.com@reuters.net))

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