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Masayoshi Son has already paid the price for his close ties with Saudi Arabia. He could soon go much higher.
SoftBank Corp. Group de Son recorded the biggest drop in more than two years on Monday, after Saudi Arabia found itself under fire for the disappearance of journalist Jamal Khashoggi. The Kingdom is the largest outside investor in the $ 100 billion SoftBank Vision Fund, which has supported Uber Technologies Inc., WeWork Cos., Didi Chuxing and Slack Technologies Inc.
The Saudi authorities have denied having committed wrongdoing, but the Turkish authorities have claimed that the author of the Washington Post was murdered after entering a Saudi consulate in Istanbul. The United States demands an explanation, while business leaders, including Uber's CEO, withdrew from the "Davos in the Desert" event in Saudi Arabia. Monday's fall of SoftBank brings the decline in market value to $ 22 billion, which peaked in September.
Saudi King Salman has ordered the opening of an internal investigation into Khashoggi's disappearance, which could hold people accountable if the evidence warrants it, according to a report released Monday by Bloomberg. Donald Trump dispatched state secretary Michael Pompeo to Saudi Arabia to meet with the king and suggested that "dishonest killers" may be behind this incident.
The problem for Son is that his grand vision depends on Crown Prince Mohammed bin Salman, who pledged $ 45 billion for the Vision Fund after a 45-minute speech by Son and promised a similar amount for the next fund. Not only are these commitments now in question, but SoftBank could face a revolt in Silicon Valley if entrepreneurs began to think that taking his money was like money.
"If the Saudis are involved in the murder, many investors might not want to take their money," said Chris Lane, an analyst at Sanford C. Bernstein & Co. "This could start freezing the Future Vision Fund offers. also potentially Vision Fund II in danger. "
SoftBank's shares had risen 29% this year until September 28, as investors began to thank Son for his ambitious investments in technology startups in the US, China and elsewhere. But the stock has fallen 19% since then, due to Saudi controversy and widespread decline in technology shares, including a 7.3% drop on Monday.
A spokesman for SoftBank declined to comment. Saudi Prince Mohammed said that Khashoggi had left the consulate building unscathed, but the Saudi authorities gave no evidence to support this claim.
On Monday, Amir Anvarzadeh, senior strategist at Asymmetric Advisors in Singapore, removed SoftBank from its list of recommended shares for purchase. In a research note, he explained the risks of the Saudi controversy and the defeat of technological values.
"Although we did not expect the latest diplomatic incident to lead to sanctions against Saudi Arabia, it is still possible for some companies to withdraw their money from the Vision Fund," wrote Anvarzadeh. "However, we are starting to worry about other more likely scenarios that could disrupt Son's plans. First and foremost, we believe that companies in the technology sector will remain under pressure. "
Jeff Kingston, a professor at Temple University in Tokyo, said SoftBank could see its reputation taking on new technologies if the Saudi regime were found guilty. Technicians have increasingly put pressure on employers to avoid relationships they consider politically compromised. Google, for example, has decided not to renew a contract with the US defense service after protests from its employees.
"Its going to find a cooler welcome in Silicon Valley," said Kingston. "The philosophy of these young venture capitalists is that they want to make the world a better place. It is difficult to reconcile with the vision of darkness that Saudi Arabia projects. "
If a boycott materializes, it could be a serious setback. His son has made risk investments for decades, dating back to the first bets on Yahoo! Inc. and Alibaba Group Holding Ltd. He began to increase his investments in technology last year by raising the first Vision fund. He explained that he saw unprecedented opportunities in artificial intelligence, autonomous driving and other technologies.
He has acquired the largest holdings in many of the world's largest startups, including Uber, and has confused his rivals Silicon Valley with his unprecedented work. In an interview with Bloomberg last month, he announced his intention to create a new $ 100 billion fund every two or three years. Its goal is to give entrepreneurs the opportunity to compete with unlimited amounts of money.
"Capital is not the only thing, but I can help entrepreneurs accelerate," he said. "I can help make it a bigger success, I can stimulate."
Kingston said the founders would watch how Son handles the situation in Arabia. Although the investigation into Khashoggi's disappearance is underway, his decisions will now weigh on future opportunities.
"This is a litmus test for Son and for the whole of the Silicon Valley culture that he has helped fund," he said. "It's a decisive moment. Who are we?"
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