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SoftBank Vision Fund planning writedown of over US$5 billion

This is to reflect a plunge in the value of some of its biggest holdings, including WeWork and Uber Technologies, say sources

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Mr Son at a press conference to announce the company’s financial results in Tokyo recently. News of the writedown comes as SoftBank courts prospective investors for its second Vision Fund.

New York

SOFTBANK is planning to take a writedown to its Vision Fund of at least US$5 billion to reflect a plunge in the value of some of its biggest holdings, including WeWork and Uber Technologies Inc, according to people with knowledge of the matter.

The Tokyo-based parent of the US$100 billion Vision Fund, which began investing in 2017, is poised to unveil the writedown when SoftBank announces second-quarter earnings on Nov 6, said the people, who requested anonymity because the matter is private.

The writedown is being driven by the Vision Fund's holdings in ride-hailing giant Uber and WeWork parent We Co, the beleaguered co-working company that SoftBank agreed this week to rescue, they said. SoftBank's shares slid 2.7 per cent to their lowest since January, putting the stock on track for a fourth straight day of losses.

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Uber and WeWork, once among the brightest stars in the SoftBank constellation, now number among its worst performers. Their shrinking valuations have called into question billionaire Masayoshi Son's investment credibility at a time that he's trying to raise an even larger successor to his original mega fund.

The tepid performance of ride-hailing stocks in particular has influenced the way SoftBank is thinking about valuing its investments in the sector, the people said. Public markets have not been kind to either Lyft Inc or Uber, which has tumbled more than 25 per cent since its May initial public offering.

That has led the Vision Fund to reassess its recorded valuations of other ride-hailing companies, such as Didi Chuxing and Grab Holdings Inc, said the people. Between June 30 and Sept 30, the value of SoftBank's 13 per cent stake in Uber decreased by about US$3.5 billion, according to Bloomberg data.

The writedown could be as high as US$7 billion, but the amount has not yet been finalised and could still change, one of the people said. That surpasses some market projections: Mizuho Securities analyst Yusuke Hori has estimated declines in portfolio companies could force SoftBank to book as much as a 500 billion yen (S$6 billion) valuation loss. Representatives for SoftBank and the Vision Fund declined to comment.

The Japanese conglomerate is due to report results in two weeks, when investors will zero in on how the WeWork deal affects its finances. SoftBank has said it didn't get a majority of voting rights, meaning its troubled investee will be treated as an associate, not a subsidiary - potentially keeping its balance sheet free of some US$22 billion of debt and US$47 billion in looming lease-payment obligations.

"Eventually this is going to come back to haunt them," said Amir Anvarzadeh, a market strategist at Asymmetric Advisors Pte. "The market is just not in the mood to offer money-losing unicorns the kind of money SoftBank was willing to pay."

The news of the writedown comes as SoftBank courts prospective investors for its second Vision Fund, which it has said it hopes will be even bigger than the first. The original Vision Fund - in large part backed by SoftBank, Saudi Arabia's Public Investment Fund and Abu Dhabi's Mubadala Investment Co - had made 83 investments by June 30, according to an August disclosure.

The scale of those bets was big enough to change the way the Silicon Valley startup ecosystem operates. The Vision Fund disclosure showed that the fund had made cumulative investments of US$71.4 billion, and had combined unrealised and realised gains from investments and related hedges of US$20.2 billion; a year-on-year jump from US$30.9 billion in investments and US$5.2 billion in cumulative gains.

Softbank Vision Fund's sprawling portfolio spans numerous industries but has been dominated by transportation and logistics bets, with US$28.3 billion of its total investments dedicated to this sector as at June 30.

These were held at a fair value of US$33 billion at that date. Its US$8 billion worth of real estate investments in companies including WeWork, Compass and Opendoor were marked at US$9.9 billion as at June 30. The Vision Fund's exposure to WeWork is less than that of its parent, SoftBank. BLOOMBERG