Softbank's Son still betting on himself

Tokyo

SOFTBANK Group Corp's Masayoshi Son is continuing to bet on himself, even after he reportedly considered and then abandoned the idea of taking his conglomerate private.

Mr Son discussed the idea with investors including Elliott Management and the Abu Dhabi sovereign-wealth fund Mubadala in the past week, the Financial Times reported, before moving ahead with a plan to sell assets instead.

The Japanese billionaire is backing himself in other ways. A regulatory filing on Tuesday shows his stake has risen to 26.9 per cent from 25.5 per cent and, with SoftBank's shares gyrating wildly, he also pledged more stock against his holdings.

Mr Son committed an extra 600,000 shares, or about 0.3 per cent of his holdings, to lenders, the filing shows. It means 38.6 per cent of his stake is now pledged to global banks including UBS Group AG and Nomura Holdings Inc, more than triple the level in 2013. He also loaned 30 million shares - about 5 per cent of his holding - to Son Equities, according to the disclosure.

The holding company is invested in GungHo Online Entertainment, a gaming firm founded by his youngest brother Taizo Son whose shares have dropped 35 per cent this year.

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The size of Mr Son's pledges - 216.9 million shares worth US$7.4 billion - are among the most significant tracked by the Bloomberg Billionaires Index.

"It's most common among controlling shareholders," said Michael Puleo, assistant professor of finance at Fairfield University's Dolan School of Business in Connecticut. The practice is rare right now because of the stock market rout and it is much more expensive to satisfy margin calls, he added. "Banks want nothing to do with high-risk loans."

SoftBank's shares have tumbled since February with investors concerned about some of its investments.

The past week Mr Son began thinking of a leveraged buyout after Gordon Singer of Elliott's London office expressed interest in buying more SoftBank shares last week, one person said, according to the FT.

The plan was eventually abandoned for a number of reasons, including difficulty in getting an investor consortium together so quickly for a large deal, Tokyo listing rules and tax considerations.

The regulatory filing doesn't explain the rationale for Mr Son's 30-million-share transaction but the shifting of stakes is a reminder of the complex web of relationships that have long underpinned one of Japan's largest fortunes.

When GungHo was spun out of SoftBank in 2015 all the shares owned by Taizo Son's holding company were pledged to his brother's Son Holdings, according to a statement at the time.

Mr Son has also leveraged his stake in the Vision Fund, which invests in tech startups, including WeWork and DoorDash. That boosts his returns if things go well, with outsize losses if they don't.

Leveraged bets are common among the wealthy, but the market-wide plunge triggered by the spread of the coronavirus is pressuring rich families across the globe, who over the years used share-backed debt facilities. Some are now facing margin calls, adding to broader financial turmoil.

Like Mr Son, SoftBank isn't averse to pledging its holdings. Its stakes in Alibaba Group Holding Ltd and SoftBank Japan both include pledged shares. The company's enormous debt load and ties to unprofitable startups from WeWork to Oyo Hotels through its US$100 billion Vision Fund are worrying investors.

Other assets like chipmaker Arm Holdings aren't listed and may prove difficult to monetise quickly. SoftBank shares have tumbled 34 per cent since Feb 12, even after soaring this week on Mr Son's plan on Monday to unload 4.5 trillion yen (S$58.5 billion) of assets. The disposal includes the sale of about US$14 billion of its shares in prize asset Alibaba. That amount will probably increase, Bloomberg Intelligence analyst Anthea Lai said in a note this week. BLOOMBERG