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SoftBank’s Son Is Betting on Himself After Go-Private Talks

Tom Metcalf and Pei Yi Mak

(Bloomberg) -- SoftBank Group Corp.’s Masayoshi Son is continuing to bet on himself, even after he considered and then abandoned the idea of taking his conglomerate private.

Son discussed the idea with investors including Elliott Management and the Abu Dhabi sovereign-wealth fund Mubadala in the past week, the Financial Times reported, before moving ahead with a plan to sell assets instead.

The Japanese billionaire is backing himself in other ways. A regulatory filing Tuesday shows his stake has risen to 26.9% from 25.5% and, with SoftBank’s shares gyrating wildly, he also pledged more stock against his holdings.

Son committed an extra 600,000 shares, or about 0.3% of his holdings, to lenders, the filing shows. It means 38.6% of his stake is now pledged to global banks including UBS Group AG and Nomura Holdings Inc., more than triple the level in 2013.

He also loaned 30 million shares -- about 5% of his holding -- to Son Equities, according to the disclosure. The holding company is invested in GungHo Online Entertainment, a gaming firm founded by his youngest brother Taizo Son whose shares have dropped 33% this year, according to data compiled by Bloomberg.

The size of Son’s pledges -- 216.9 million shares worth $7.4 billion -- are among the most significant tracked by the Bloomberg Billionaires Index. That amount trails only Larry Ellison, Russia’s Suleiman Kerimov and China’s Qin Yinglin on the ranking of the world’s 500 richest people.

“It’s most common among controlling shareholders,” said Michael Puleo, assistant professor of finance at Fairfield University’s Dolan School of Business in Connecticut. The practice is rare right now because of the stock market rout and it is much more expensive to satisfy margin calls, he said. “Banks want nothing to do with high-risk loans.”

Largest Fortunes

SoftBank spokeswoman Hiroe Kotera declined to comment on Son’s personal finances.

SoftBank’s shares have tumbled since February with investors concerned about some of its investments.

The past week Son began thinking of a leveraged buyout after Gordon Singer of Elliott’s London office expressed interest in buying more SoftBank shares last week, one person said, according to the FT. The plan was eventually abandoned for a number of reasons, including difficulty in getting an investor consortium together so quickly for a large deal, Tokyo listing rules and tax considerations.

The regulatory filing doesn’t explain the rationale for Son’s 30-million-share transaction but the shifting of stakes is a reminder of the complex web of relationships that have long underpinned one of Japan’s largest fortunes.

When GungHo was spun out of SoftBank in 2015 all the shares owned by Taizo Son’s holding company were pledged to his brother’s Son Holdings, according to a statement at the time. Son has also leveraged his stake in the Vision Fund, which invests in tech startups, including WeWork and DoorDash. That boosts his returns if things go well, with outsize losses if they don’t.

Leveraged bets are common among the wealthy, but the marketwide plunge triggered by the spread of the coronavirus is pressuring rich families across the globe, who over the years used share-backed debt facilities. Some are now facing margin calls, adding to broader financial turmoil.

India’s Gautam Adani and his family put up an additional $1.4 billion of stock as collateral on existing debt earlier this month. In China, shareholders of at least 14 firms were asked to supply additional shares. The Hinduja family, one of the world’s richest clans with interests in finance, energy and real estate, are repaying debt backed by equity they hold in lender IndusInd Bank Ltd. after a stock rout caused a breach in loan terms.

Like Son, SoftBank isn’t averse to pledging its holdings. Its stakes in Alibaba Group Holding Ltd. and SoftBank Japan both include pledged shares.

The company’s enormous debt load and ties to unprofitable startups from WeWork to Oyo Hotels through its $100 billion Vision Fund are worrying investors. Other assets like chipmaker Arm Holdings aren’t listed and may prove difficult to monetize quickly. Moody’s Japan downgraded SoftBank’s unsecured debt rating on Wednesday, saying the Japanese investment firm’s plan to sell off assets during a market downturn threatened the value of its entire portfolio. SoftBank responded to the downgrade by saying it was “biased and mistaken.”

SoftBank shares have tumbled 27% since Feb. 12, even after soaring this week on Son’s plan Monday to unload 4.5 trillion yen ($41 billion) of assets.

The disposal includes the sale of about $14 billion of its shares in prize asset Alibaba. That amount will probably increase, Bloomberg Intelligence analyst Anthea Lai said in a note this week.

Even for a billionaire who embraces risk as much as Son, the past few weeks have been tumultuous.

At the start of the month his fortune stood at $17 billion. In two weeks it was cut in half. So far this week it has climbed by about 50% as markets embraced his plan.

Son may be comfortable with such swings. He saw $70 billion wiped from his net worth in the dot-com crash. But falling fortunes aren’t the only potential downside of pledging shares.

“It can get painful for more than one reason,” said Fairfield University’s Puleo. “There’s the loss of wealth but it also creates very negative headlines.”

(Updates with Moody’s downgrade in 16th paragraph)

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