SoftBank signals tempering of investment sentiment for the year ahead

SoftBank Group Chairman and CEO Masayoshi Son’s presentation during the company’s annual results on Thursday mirrored the cautionary tone of the markets. Being on the ‘defensive' and implementing ‘stricter investment criteria’ punctuated the presentation by Masayoshi, usually known for his soul-searching responses to hard-ball questions on investments.

The head of one of the largest growth investors in Indian technology startups said that it will reduce the pace of investments for the coming year and apply stricter investment criteria, focusing mostly on private companies. This stems from the global public market rout and cascading effect on listed Indian entities. 

“We will make small investments…We might not have a new pipeline of portfolio companies but we will go on the offensive mode when the markets improve,” said Son. 

He added that instead of reinvesting the profits from exits, SoftBank Group will look at conserving cash and maintaining its Loan-to-Value ratio at 25 percent. 

SoftBank has a portfolio of 475 companies across SoftBank Vision Funds I (SVF I) and II (SVF II). SVF I includes companies like Paytm and Policybazaar and recorded a $23.9 billion erosion in the value of its portfolio companies. Paytm alone accounted for a $600 million notional loss in value for SVF I. 

From SVF II, SoftBank made investments of $2 billion in the first five months of the calendar year 2021 and was planning to invest a total of $4 billion over the year, according to interviews given by Rajeev Misra, CEO, SoftBank Investment Advisers and Executive Vice President of SoftBank Group. It had bet on Flipkart, Ofbusiness, Unacademy , and others from SVF II in 2021. 

Responding to queries, Masayoshi also said that going ahead, the group’s investment strategy will focus more on private securities.

“The investment strategy will be stricter as we evaluate the valuation and growth ratio of these private companies against their publicly listed peers. We will also be more careful on the due diligence and whether we can depend on the business plan proposed by the company,” he said. 

The unrest in the Chinese market has also led SoftBank to divest its stake in Alibaba down to 20 percent from 60 percent. Masayoshi added that due to increased government scrutiny in the Chinese market and the impact of the pandemic, SoftBank had reduced its exposure to the country.

“We have reduced our dependency on the Chinese markets for the future,” said Son.

This could mean that growing markets like India will continue to attract capital from SoftBank though at a much more conservative pace. 

According to the earnings report, SVF I made investments totaling $3.33 billion during fiscal 2022 and held 82 investments, including 22 listed companies. SVF II made new and follow-on investments totaling $40.82 billion during the fiscal, holding a total of 250 investments including 14 listed entities.