Vision Fund Goes to India?

Softbank incorporated SB Investment Holdings, Ltd. in England on May 11, 2017. What’s notable is the company was first called SVF India Holdings (UK) as of May 15th when the name changed to the current one.  

Once decoded, the old name, SVP India Holdings, hints at the Vision Fund’s future plans.

First, SVF is an abbreviation for the Softbank Vision Fund. Secondly, India may be another place for investment besides the developed countries such as the United States and United Kingdom.

It may also be Softbank’s intentions to contribute some or all of its existing India investments – Ola, Snapdeal, Paytm – to the Vision Fund.

Softbank Cashes Out of ARM

Softbank is reportedly monetizing part of its ARM holdings with a partial sale to the Softbank Vision Fund.

The transaction allows Mr. Son to monetize his ARM holdings while still maintaining control. Softbank purchased ARM last year for $32 billion and is now selling one quarter for $8 billion. Softbank will still effectively control more than three quarters of ARM since Softbank is also an investor in the Vision Fund.

Selling part of ARM, while retaining control, is similar to another transaction by Softbank. Softbank monetized its Alibaba shares in 2016 with the same outcome. Using derivatives, Softbank appears to have gotten cash from their Alibaba holdings, while still owing the Alibaba shares.

 

Masayoshi Son’s Own Singularity

Masayoshi Son may not make it to Singularity. Today in Barcelona at Mobile World Congress, Mr. Son spoke about the future and answered the question: Why do we need so much money? Based upon the announced deals so far, Softbank is committed to investing $25 billion in Vision Fund, $3.3 billion for private equity firm, Fortress, and a rumoured $2 billion for WeWork. In addition, Softbank is part of the new, $500 million funding round for SoFi.

At the end of last year, Softbank had about $22 billion in just cash, even after making the $32 billion ARM purchase in July 2016. Selling its stake in Supercell for $8 billion added to Softbank’s cash balance last year. To find more money, Softbank has done a sale-leaseback for $2 billion and raised $8 billion by monetizing its Alibaba holdings in 2016.

Besides cash, Softbank needs to worry about debt; in this case about $30 billion, some of which came from the Sprint acquisition. It appears, Softbank is trying to unload its Sprint investment through a merger with T-Mobile. If that’s true, then it would be a reversal of Mr. Son’s original vision and evidence of another problem: Mr. Son sometimes acts more as gambler than businessperson. 

Fortune portrayed Softbank’s foray into India’s tech scene this way:

Around the time Arora joined SoftBank, Masayoshi Son decided that India was the next big growth opportunity, and Son tackled investing in the region in his usual swashbuckling style. He approached Kunal Bahl, founder of fast-growing e-commerce startup Snapdeal, with an unheard-of offer to invest $1 billion for a majority stake.

Just like Singularity, Mr. Sons’ ambitions may exceed the practical limits of Softbank’s balance sheet. So a better question for Mr. Son is: How does he spend money?

 

 

Alibaba is china

Time to reflect upon this: Softbank is working hard, putting together another investment fund, the Vision Fund, to replicate prior successes like Alibaba.

A small investment in Alibaba, made about fifteen years ago by Masayoshi Son, is now worth many, many billions.  Only Yahoo’s Jerry Yang had the same “luck” when he invested in Alibaba a little over ten years ago. Yang’s investment has grown to overshadow the worth of Yahoo’s other operating businesses.

Alibaba’s public stock offering provided an opportunity to cash out for Yahoo and Softbank. Last year, some of Softbank’s Alibaba shares were sold for $10 billion in order to pay down debt and strengthen the balance sheet. Softbank still owns about one third of Alibaba.

Yahoo doesn’t own a third of Alibaba, but still has a substantial ownership. Like Softbank, Yahoo sold some Alibaba shares; this time, the sale was in 2014 and by Marissa Mayers. Unlocking value in the remaining Alibaba shares, the machination of Starboard Value’s Jeffrey Smith, has lead to selling of Yahoo‘s online business to Verizon.

What would happen if Jeffery Smith and Masayoshi Son were wrong? That Alibaba isn’t worth so much. Then they wouldn’t need to worry so much. For example, Naspers small bet on Tencent is now worth many, many billions, leaving current the CEO with an “existential crisis” of his next bet.

In these euphoric times, Alibaba may not be that high. Famed short-seller, Jim Chanos did have a short position on Alibaba as of last year. His shorting thesis is that Alibaba’s true earnings are obscured by the use off-balance entities. His trade may be wrong, but what is right is understanding the importance of Alibaba’s value to Softbank and to a lesser degree, Yahoo.

It’s not china, but with Alibaba, we must be careful, because it could break.