SoftBank shaken by WeWork, but committing billions

SoftBank founder and Chief Executive Officer Masayoshi Son speaks during a recent news conference in Tokyo. (AP)
Updated 25 October 2019

SoftBank shaken by WeWork, but committing billions

  • Tech giant ‘has ample funds to endure pain from bailout of office-space sharing startup’

TOKYO: Japanese technology giant SoftBank has committed billions of dollars to bailing out office-space sharing startup WeWork in a daring vote of confidence from its intrepid founder Masayoshi Son.

WeWork’s woes are substantial enough that some analysts say they could derail the investment ambitions of SoftBank’s mammoth Vision Fund.

But, as one of the most innovative companies in conservative Japan Inc., SoftBank is no stranger to risk-taking. 

SoftBank has ample funds to endure the pain from its massive bailout of WeWork, analysts said, even as it is reportedly set to write-down at least $5 billion due to a slump in the value of the US office sharing startup and some other top holdings.

SoftBank Group has agreed to offer a $9.5 billion lifeline to WeWork to take control of the US office-space sharing startup, now valued at $8 billion.

HIGHLIGHTS

• SoftBank oversees expanding conglomerate of businesses spanning telecommunications, energy and humanoid robots.

• WeWork, the New York-based company, founded in 2010, set up shop just last year in Japan, where its clients include Pinterest and Slack.

• SoftBank Group’s Chairman and Chief Executives Masayoshi Son said new companies always face challenges, but that does not mean their vision is wrong.

The deal, which comes on top of more than $10 billion investment SoftBank has already committed, is set to strain the Japanese investment firm’s bottom line.

Citing people with knowledge of the matter, Bloomberg said SoftBank would announce the write-down along with its second quarter earnings on Nov. 6.

A SoftBank spokesman declined to comment on the report. 

Since spinning off its namesake telecom unit SoftBank Corp, analysts now view SoftBank as a financial holding company. More akin to a bank, the company is taking on more debt and relying on cash flows from its operating units to pay the interest.

 

Leverage

“From a leverage standpoint, SoftBank has some cushion to take on additional debt,” said Moody’s analyst Motoki Yanase.

Although SoftBank has an army of retail investors in yield-strapped Japan willing to buy its junk bonds, it already holds about 5 trillion yen of net debt on its balance sheet — more than half its 9 trillion yen market capitalization.

Both Moody’s and S&P Global rate SoftBank below investment grade. That means the company has to pay higher interest on its bonds and loans. The company’s weighted average cost of debt is 3.7 percent, the seventh-highest among all companies on the Nikkei 225 Stock Average, according to Refinitiv data.

Even so, SoftBank retains huge holdings in listed companies that could be sold off if the company needs cash, said S&P analyst Hiroyuki Nishikawa.

Portfolio companies backed by SoftBank and its $100 billion Vision Fund include British chip designer ARM, Slack Technologies Inc., and ride-hailing firms such as Uber Technologies Inc, Grab and Didi.

Jefferies downgraded SoftBank stock to hold from buy on Friday, saying that the WeWork rescue sets an “undesirable precedent” for the group’s private investments.

“We don’t know where the risk limit is for SoftBank given they have bet so heavily,” said Jefferies analyst Atul Goyal. Among more typical private equity funds “most of them probably let go of the failures, they don’t double down.”


NMC Health removes CEO amid investigation of UAE firm’s finances

Updated 27 February 2020

NMC Health removes CEO amid investigation of UAE firm’s finances

  • Chief Executive Prasanth Manghat was dismissed with immediate effect
  • Chief Operating Officer Michael Davis was appointed as interim CEO

NMC Health has removed Chief Executive Prasanth Manghat with immediate effect and granted its finance chief extended sick leave, as more details emerge from an investigation into the UAE health care firm’s finances.
Abu-Dhabi based NMC said after Wednesday’s market close that it had appointed Chief Operating Officer Michael Davis as interim CEO to succeed Manghat and said Chief Financial Officer Prashanth Shenoy had been placed on longer leave.
Manghat had been with NMC for about 10 years in various roles, including deputy CEO and CFO, and had seen the company through its 2012 listing on the London Stock Exchange.
The moves are the latest blow for the firm whose shares have lost about two thirds of their value since US-based short-seller Muddy Waters late last year questioned its financial statements.
NMC had said at the time that the report was “false and misleading,” but had opened its own investigation into company finances. The review is being led by Louis Freeh, who was director of the Federal Bureau of Investigation in the United States from 1993 to mid-2001.
NMC on Wednesday said the investigation committee had identified supply chain financing arrangements that were entered into by the company and “which are understood to have been used” by entities controlled by founder BR Shetty and former vice-chair Khaleefa Butti Omair Yousif Ahmed Al Muhairi.
Reuters was unable to reach Manghat, Shetty and Muhairi for comment outside business hours on NMC’s latest statement.
The company, which operates clinics and hospitals, specialized maternity and fertility clinics, and long-term care homes in 19 countries, said the committee was reviewing a drawdown of its facilities that had not been disclosed or approved by the board.
Its shares closed 6.6% higher before Wednesday’s statement.
NMC also said it had suspended a member of its treasury team over possible discrepancies in its bank statements and ledger entries, and said it would be unable to publish its annual results till at least the end of April.
Indian billionaire Shetty resigned as NMC’s co-chairman this month, after British regulators said they were looking into NMC following a disclosure that he had misstated the size of his stake.
Shetty had said this month that his NMC shareholdings were under a legal review looking into a large portion of his shares signed to two of NMC’s top investors in 2017, while some of his other stock had been pledged as security against loans.