SoftBank on the brink of passing grim debt threshold as market selloff sends Alibaba, Didi, and DoorDash bets into freefall, analysts say

  • SoftBank is on the brink of a debt threshold it was never supposed to surpass in “normal times.”
  • Analysts tip SoftBank’s loan-to-value ratio to top 25% when its annual results are unveiled on Thursday.
  • Bets on the likes of DoorDash and Alibaba have been hobbled by the rout on tech stocks.

In Japan’s springtime, the holiday season of Golden Week typically presents citizens with a rare moment for respite.

However, for SoftBank founder Masayoshi Son, the arrival of this year’s vacation period on the cusp of the firm’s annual results showcase will have brought anything but.

The Japanese tech investor is teetering on the brink of a debt threshold that Son has said the company would not surpass during “normal times,” analysts told Insider. The market downturn has hobbled the value of SoftBank’s biggest bets with the likes of Alibaba and DoorDash recording massive slumps in their share prices.

Analysts expect Son to announce SoftBank’s loan-to-value (LTV) ratio – a key metric representing net debt as a share of equity holdings – has hit the 25% figure that the firm has desperately tried to avoid when he unveils its annual results on Thursday.

For SoftBank, which has aimed to position itself as one of the most powerful investors in tech companies since the inception of its Vision Fund in 2017, the rise in the LTV ratio will reflect poorly on its ambitions to excel as the shrewdest financier of next-generation internet startups.

More broadly, the results are expected to mark a severe reversal in fortune for SoftBank, which reported a record $45.8 billion profit for its last fiscal year, as rising interest rates and other economic and geopolitical factors have triggered a rout on tech stocks. 

Rolf Bulk, equity research analyst at New Street Research, said passing the threshold had painted a “grim” picture for SoftBank, particularly as Alibaba, the Chinese e-commerce giant that SoftBank has a 25% holding in, has tumbled amid a regulatory squeeze from Beijing on Chinese tech firms. 

Bulk also pointed to a number of publicly-listed companies that occupy a large chunk of the Vision Fund’s holdings such as DoorDash, Uber, Didi Chuxing, and Coupang – all of which have taken a huge hit as a result of the downturn.

“All of those stocks have declined in the double digits over the last quarter, and that means very likely Vision Fund performance will be a drag on net asset value, which is the key metric to look at when it comes to SoftBank,” Bulk said.

In sum, the hit on the Vision Fund’s holdings could amount to more than $25 billion since the start of the year as a result of an aggressive sell-off, according to an analysis from the Wall Street Journal.

The portion of debt SoftBank has in relation to its asset holdings has slowly been creeping up, in recent months, as the company said the debt was at 22% of the level of its equity holdings in the three months to the end of December, up from 19% the previous quarter.

David Gibson, a senior research analyst at MST Financial, a financial services firm in Sydney, noted the top brass at SoftBank were aware of the need to watch the pace of Vision Fund investments, as it “slowed down massively last quarter, and will be even slower this quarter”.

Other financing options are in play too, with SoftBank looking to secure an $8 billion margin loan from banks lining up to play a role in the public listing of its Cambridge-based chip firm ARM, according to Bloomberg

“An asset-backed loan prior to the listing of ARM later in the year would help tremendously towards propping up that 25% figure,” Bulk said.

The company could also look to increase the sale of assets it holds. In March, for instance, SoftBank sold its stake in GM’s autonomous car unit Cruise for $2.1 billion, though how far SoftBank will go in offloading tech-focused assets it has amassed in recent years is unclear. 

Analysts noted SoftBank should have enough cash at hand to comfortably manage its spend for the year, which includes roughly $2 billion in interest expenses to service their debt, and a potential margin call on billions of dollars of Alibaba-backed margin loans, New Street Research’s Bulk said.