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By Sam Nussey
TOKYO (Reuters) - SoftBank Group Corp shares jumped 10.5% on Tuesday, the first trading session after the Japanese conglomerate said it would spend up to 1 trillion yen ($8.8 billion) buying back almost 15% of its shares.
The company announced the buyback, long speculated about by the market, after it revealed its quarterly earnings crashed to a loss amid a decline in the share prices of its portfolio companies and a regulatory crackdown in China.
SoftBank's shares closed at 6,808 yen in its biggest daily rise in 11 months, lifting the group's market capitalization above $100 billion. Tuesday's trading volume was more than twice the 30-day average.
The buyback is SoftBank's second largest after a record 2.5 trillion yen buyback launched during the depths of the COVID-19 pandemic last year. Shares of the tech group quadrupled during that buyback, but have since fallen 40% from a peak in May.
"Our analysis of buyback history indicates that SBG stock performs (and outperforms indices or BABA) during buybacks," wrote Jefferies analyst Atul Goyal in a note, referring to Alibaba, the group's largest asset. SoftBank owns about a quarter of Alibaba's shares.
The slide in the Chinese e-commerce giant's shares and the broader regulatory backlash in China contributed to a $57 billion fall in SoftBank's net assets to $187 billion, a metric that Chief Executive Masayoshi Son has said is the primary measure of SoftBank's success.
(For graphic on Buyback dependence Buyback dependence: https://graphics.reuters.com/SOFTBANKGROUP-SHARES/byprjkkkdpe/chart.png)
The repurchase period for the latest buyback runs to Nov. 8 next year, with the group signalling the programme could take longer than the fast-paced purchases last year.
The buyback "is nice support, but it isn't rocket fuel," wrote LightStream Research analyst Mio Kato on the Smartkarma platform, adding "there are material downside risks if broader tech, especially unprofitable tech, falters."
Speculation that SoftBank could launch a buyback has been raging for months as the discount - the gap between the value of its assets and its share price - has lingered to the frustration of executives and as investors push for repurchases.
Ongoing uncertainties include the prospect of gaining regulatory approval for the $40 billion sale of chip designer Arm to Nvidia.
Delays to the sale "may have given Softbank the flexibility to announce a buyback now with expectations of ramping up share purchases later," Redex Research analyst Kirk Boodry wrote in a note.
SoftBank is ramping up investing via Vision Fund 2, which has $40 billion in committed capital from the group and Son himself, even as it winds down activity at trading arm SB Northstar.
"Even if the company manages its finances with a certain amount of discipline, share buybacks would likely erode the financial buffer if executed," S&P Global Ratings analysts wrote in a note.
The conglomerate held more than 5 trillion yen in cash and cash equivalents at the end of September, an increase of 9% compared to six months earlier.
($1 = 113.3500 yen)
(Reporting by Sam Nussey; Editing by Sam Holmes, Stephen Coates, Jane Wardell and Raju Gopalakrishnan)