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SoftBank warns of $9.6bn investment losses due to coronavirus

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Via Financial Times

SoftBank has warned of a writedown of more than ¥1tn ($9.6bn) on investments held outside its huge Vision Fund, as the coronavirus crisis piles new pressure on founder Masayoshi Son’s bet on struggling WeWork.

The Japanese technology group’s widened loss forecast, announced on Thursday, came just two weeks after SoftBank flagged a ¥1.8tn blow to its $100bn, Saudi-backed technology fund, underscoring the depth of its exposure to the market turmoil sparked by the pandemic.

SoftBank said a newly recognised non-operating loss of ¥700bn on WeWork arose from the “fair value measurement” of the multibillion-dollar rescue package that the Japanese group put in place when the lossmaking US property group was on the brink of insolvency last year.

In a sign of the complexity of its WeWork commitment totalling $14.3bn, the company said it was unable to include the figure in its guidance two weeks ago, given how long it took to assess the value of WeWork’s debt. WeWork’s bonds have been trading deep in distressed territory at around 42 cents on the dollar. That puts their current yield at about 36 per cent.

SoftBank’s package included a $1.5bn cash injection as well as $2.2bn in debt and a $1.75bn line of credit for WeWork, although the group has since walked away from a previously agreed $3bn deal to buy shares from WeWork investors. 

The property group has been hit hard by the Covid-19 outbreak with some tenants refusing to pay rent or requesting the termination of their month-to-month lease agreements. 

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As a result of the WeWork losses, SoftBank said it now expects a net loss of ¥900bn for the fiscal year that ended in March, compared to a ¥750bn loss projected in mid-April. It kept its operating loss forecast of ¥1.35tn — its biggest ever — unchanged. 

In addition to WeWork, the company blamed the non-operating losses outside of the Vision Fund on its investment in OneWeb, the satellite internet start-up that filed for bankruptcy last month.

Shares in SoftBank rose as much as 3.6 per cent on Thursday to ¥4,775 despite the guidance cut. That is because investors have already largely written off the value of WeWork.

Kirk Boodry, a technology analyst at Redex Holdings who publishes on the research platform Smartkarma, said: “It’s hard to understand how SoftBank can keep getting losses on WeWork since this [writedown] will take its worth to close to zero.”

SoftBank’s stock price had recovered sharply since plunging to a four-year low in late March. That sell-off prompted emergency meetings, in which Mr Son considered taking the company private before instead launching plans for a $41bn asset sale to ease pressure on the shares.

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