SoftBank cut its exposure to Wirecard this week within hours of signing a strategic tie-up with the German payments company, in a move that could net the Japanese conglomerate a big profit while taking little risk.

SoftBank announced in April that it had agreed to pour €900m into Wirecard, providing a vital vote of confidence in the Aschheim-based company that has faced controversy over its accounting.

SoftBank did not purchase a stake in Wirecard, however. Instead it bought a convertible bond, a type of debt that can be repaid in stock rather than cash.

Wirecard’s shareholders gave final approval to the transaction on Wednesday, while also formally signing a “strategic cooperation agreement” with SoftBank. The following day, Credit Suisse sold a new €900m Wirecard bond that is exchangeable for stock to a broad group of investors.

The new deal effectively means that SoftBank has taken the money it invested off the table, in what SoftBank executives described as a “return optimisation” measure.

SoftBank and Credit Suisse declined to comment. Wirecard did not respond to requests for comment.

Analysts at brokerage Stifel said that Thursday’s deal offloads the “economic risk” of the Japanese group’s bet on Wirecard, adding that the deal effectively allows SoftBank to make good on its April commitment “without having to provide funding”.

SoftBank still has skin in the game, however, because Wirecard’s shares have rallied strongly since it announced the deal. The Japanese group has retained exposure to 3m shares — now worth around €450m — and can profit on these up to a share price around €230. Wirecard’s shares are currently trading at €149.

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The Wirecard investment was made through a special fund managed by SoftBank Investment Advisers, which manages the group’s influential $100bn Vision Fund.

Capital for the deal came from SoftBank, some of its employees and Mubadala, Abu Dhabi’s state investment company, according to people familiar with the matter. Mubadala is the second-biggest backer of the Vision Fund after Saudi Arabia’s Public Investment Fund. Mubadala did not respond to requests for comment.

A senior SoftBank executive told the Financial Times that the Wirecard trade was inspired by Warren Buffett, who has a record of making highly structured investments in seemingly troubled companies that then benefit from his reputation.

Mr Buffett’s Berkshire Hathaway bought $5bn of preferred equity in Goldman Sachs during the height of the financial crisis, for example. This paid a hefty 10 per cent annual dividend and netted Mr Buffett billions of dollars of profit when the investment bank later bought back his stake.

The so-called “repackaging” of SoftBank’s convertible bond was sold to investors at less generous terms than those the Japanese group extracted from Wirecard.

While repackagings are relatively common for small deals, convertible bond investors and bankers said that it is unusual to see one conducted on such a large scale.

SoftBank frequently makes use of equity derivatives such as those seen on its Wirecard trade, often as a way of employing leverage — raising debt against its stakes that can be deployed on other investments. For example, a so-called “equity collar” on shares in Chinese internet giant Alibaba helped SoftBank raise the funds to buy shares in Arm, the UK chip designer, before a takeover bid in 2016.

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SoftBank took profit on its Wirecard trade at a time when the group is coming under renewed scrutiny for its outsized bets on tech companies. Investors in SoftBank’s Vision Fund are braced for hefty writedowns on some of its investments. One of them, WeWork, has shelved its public listing while valuations for freshly listed Uber and Slack have tumbled.

Wirecard said its cooperation agreement with SoftBank would allow both companies to “pursue global growth opportunities and synergy effects, including through the SoftBank ecosystem in the fields of digital financial services, data analysis and artificial intelligence”.

Via Financial Times