Softbank Group Corp (SBG) yesterday said that it would sell up to US$41 billion in assets to finance a stock buyback, reduce debts and increase its cash reserves after weeks of heavy losses in its shares.
The firm said that it would buy back US$18 billion of its stock, with the remaining money to be used on paying down debt, bond buybacks and cash reserves, setting a timetable of a year to complete the transactions.
News of the massive buyback sent Softbank stock limit-up, soaring 18.61 percent to ¥3,187 (US$28.98) in the last hour of trade in Tokyo.
Photo: Bloomberg
“This program will be the largest share buyback and will result in the largest increase in cash balance in the history of SBG, reflecting the firm and unwavering confidence we have in our business,” Softbank chairman Masayoshi Son said in a statement.
“This will allow us to strengthen our balance sheet while significantly reducing debt,” he said, adding that the assets being sold account for “less than 20 percent of the company’s current asset value.”
The firm said it believes its shares are “substantially undervalued” and that the buyback would “further strengthen its balance sheet and enhance its credit rating.”
Softbank has seen its stock sink in the past few weeks on worries about the liquidity of the heavily indebted company, as global financial markets are roiled by fears about the economic consequences of the COVID-19 pandemic.
It had already announced a massive share buyback that prompted S&P Global Ratings to cut the firm’s outlook to negative, a move some analysts said misinterpreted the company’s health.
Some said that yesterday’s move should also be viewed positively.
“It’s not a bad strategy to use their cash for buying back shares when the outlook of the market and the economy is very uncertain,” Chibagin Asset Management Co general manager Yoshihiro Okumura said. “The market took the surprise announcement positively at a time when it’s hard to find good investment destinations.”
Softbank Group is attempting to improve its financial standing after booking massive losses related to the performance of key investments such as WeWork Co and Uber Technologies Inc.
The company has used its US$100 billion Vision Fund to pour enormous resources into the world’s hottest start-ups.
Yet Son’s audacious decisionmaking approach has faced criticism over his commitment to start-ups some say are overvalued and lack clear profit models.
The group last year announced its long-mooted Vision Fund 2, again targeting funds of about US$100 billion, but investors have been slower to commit.
In the latest statement, Softbank Group said that it would appoint new independent board members to improve its governance.
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