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Provide your feedback directly to the authors: Danny at danny@techcrunch.com or Arman at Arman.Tabatabai@techcrunch.com if you like or hate
something here.Today, we are focused on SoftBank .The Wall Street Journal and others reported that Masayoshi Son, the founder and CEO of
SoftBank, will take into account the killing of Saudi Arabian journalist Jamal Khashoggi when considering whether to receive additional
investment from Saudi Arabia in future Vision Funds
Saudi Arabia is the largest investor in the current Vision Fund, having pledged $45 billion of the $98 billion fund.The political risk
surrounding the Kingdom made us curious: why the obsession with Saudi money, beyond the obvious that they write monster checksThe answer
heavily levered companies in the world
operational stability.First, take the Vision Fund
According to PitchBook, most of the fund is underwritten by SoftBank itself ($28 billion), Saudi Arabia ($45 billion) and Abu Dhabi ($15
But, the fund has also been on a huge debt binge in order to juice returns
As reported by Mayumi Negishi and Phred Dvorak at the WSJ:Around 60% of the money promised to the Vision Fund by investors other than
SoftBank takes the form of debtlike securities that earn a 7% fixed return annually
the end of September, up 28% in the past six months, according to SoftBank filings
measure, even if the use of debt is relatively unusual for venture firms (unlike in private equity, where debt is very standard)
economic terms that give SoftBank huge downside protection
funded by a balance sheet that is staggering in its debt load.Image: Koki Nagahama/Getty ImagesEarlier this week, SoftBank announced profit
As of the end of September, SoftBank had around 18 trillion yen, or about $158.8 billion of current and non-current interest-bearing debt
acquisitive globetrotters, being labeled an investment firm means having a lot more room to issue debt
It noted only that Fosun had no liquidity issues considering it held 61 billion yuan ($9.6 billion) of cash and marketable securities
against 35 billion yuan of short-term liabilities.As SoftBank becomes an investment company, leverage is no longer an appropriate measure,
CFO Yoshimitsu Goto was cited as saying in a cover story in the Nikkei Asian Review last weekend
In effect, SoftBank has already started to resemble the likes of HNA, using complex instruments and margin loans backed by its shares in
Alibaba Group Holding Ltd
expansion with a highly levered balance sheet in the past
SoftBank has in fact had a deep history of operating at debt levels well above industry averages, dating back to the mid-1990s, following
debt to finance its operations versus equity
The company continued to use debt as a means of financing an ambitious MA strategy, which included the $20 billion acquisition of American
chip designer ARM Holdings in 2016
At the end of that year, SoftBank had a debt balance of around $125 billion.Then in early 2017, SoftBank announced plans for its Vision
Fund, which would effectively allow the company to continue making sizable investments despite having an overstretched balanced sheet
placing major bets on technology start-ups
While traditional private equity funds often borrow against their purchases to boost their firepower, Mr Son would likely struggle to raise
leverage against companies that have little to no cash flow.The creation of the Vision Fund led SP to revise the credit rating outlook for
SoftBank from stable to negative
And SoftBank has proven its ability to operate, and operate well, under such conditions, surviving and growing substantially over the past
two decades amidst several market turnovers and crises.Nonetheless, when a company is operating with such high leverage, risks are amplified
and even modest bumps in micro and macro conditions can have serious implications for investors, startups and the broader investment
Have thoughts Reach out to us directly.We are still spending more time on Chinese biotech investments in the United States (Arman wrote a
deep dive on this).We are exploring the changing culture of Form D filings (startups seem to be increasingly foregoing disclosures of Form
Ds on the advice of their lawyers).India tax reform and how startups have taken advantage of it.Reading docketDanny had 8 hours of meetings
