SoftBank to cut investments in China until tech sector calms down

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SoftBank will reduce its investments in Chinese start-ups until the extent of Beijing’s scrutiny of the tech sector becomes clear, its founder Masayoshi Son said on Tuesday.

Son said the Japanese investment conglomerate would take a “wait-and-see stance” until things cleared up in what they hoped would be a year or two.

“I still have very high hopes” for China, Son said, noting that SoftBank’s overall investment portfolio in China is still generating a profit.

“But we will remain cautious until we can judge how far the regulation will go… And we hope to actively resume investment when the going is clearer.

SoftBank is heavily exposed to China, with its stake in online sales company Alibaba still accounting for 39% of its asset value and Chinese startups accounting for 23% of Vision Fund’s portfolio in terms of fair value.

But since April, Son has said only 11% of his new investment has gone to China.

In an interview, the CFO of SoftBank’s Vision Fund also told the Financial Times that he remains optimistic about the long-term outlook in China. “Our investment thesis regarding China remains unchanged,” said Navneet Govil. “At the end of the day, there are a lot of innovations to be made in China.”

Son spoke as SoftBank posted a 39% drop in net income to 761.51 billion yen ($ 6.9 billion). But the same period a year ago was boosted by gains from the sale of SoftBank’s stake in U.S. operator T-Mobile following its merger with Sprint, and the quarterly profit figure was higher than Analysts forecast a net loss of 11.8 billion yen. according to S&P Global Market Intelligence.

In addition to trying to clarify his firm’s investment attitude to emerging technology risk in China, Son used the results announcement to re-define what SoftBank now stands for. that business.

He said SoftBank should be understood as a “vision capitalist” and a company that “creates the revolution”. According to his calculations, he added, SoftBank’s investment in unlisted AI companies represented around 10% of the total capital raised by these companies around the world since 2017.

A long-term investor in SoftBank, which recently reduced its position due to its exposure to tightening technology regulations in China, said it was part of a group calling on Son to better define the company since he separated his mobile phone operations and left the chip. company.

“I think this idea of ​​’vision capitalism’ is a fair attempt to put it into words, but it still doesn’t really answer key questions like, at the moment, how serious a threat China is to China. this business, “said the shareholder.

The second $ 40 billion Vision Fund, the sequel to the Saudi Arabia-backed $ 100 billion fund, continued to increase its investments over the three months. It has deployed $ 14.2 billion in 47 start-ups.

The listings of seven companies, including ridesharing app Didi and Chinese commercial freight company Full Truck Alliance, resulted in unrealized quarterly earnings of $ 5.8 billion for the Vision Fund division. But much of that has been wiped out since July due to regulatory pressures in China.

Didi’s shares have fallen by a third since its shares were introduced in New York in late June. Full Truck Alliance shares have fallen 37% since it went public on June 23 in the United States. Online education start-up Zuoyebang has also been hit by the severe restrictions China has introduced in the home tutoring sector.

The group also reduced its investments in publicly traded US technology stocks mainly through its asset management arm SB Northstar as it shed its stakes in Microsoft, Facebook and Alphabet. At the end of June, the group’s investments in listed stocks fell to $ 13.6 billion from $ 20 billion in the previous quarter, even though it reported 210 billion yen in gains on these transactions.