Billionaire Masayoshi Son, chairman and chief executive officer of SoftBank Group Corp., gestures as he speaks during a news conference in Tokyo, Japan, on Monday, Nov. 7, 2016. SoftBank Group reported better-than-projected second-quarter profit, with the wireless and internet businesses in Japan bringing in cash while Sprint Corp. shows signs of improvement. Photographer: Kiyoshi Ota/Bloomberg
Masayoshi Son, founder and chief executive of SoftBank © Bloomberg

SoftBank has arguments to deflect criticisms levelled against it. Yet the holding company’s equity is still worth less than its stake in Alibaba alone. This suggests investors are unconvinced — and many of the measures that might persuade them otherwise are ones that its founder Masayoshi Son appears unwilling to take.

Analysts at Bernstein estimate that the value of its holdings less its net debt is ¥19tn, compared with SoftBank’s market value of ¥11tn (and the ¥15tn value of its Alibaba stake). Although SoftBank is highly leveraged, that discount is not due to the perceived risk of default. The largest chunk of debt, which relates to the acquisition of telecoms group Sprint, does not directly pertain to the holding company.

Performance is more of a problem; return on assets is a third of what it was five years ago, according to S&P Global. Return on equity has remained roughly flat, thanks to that leverage.

Then, there is the financial engineering. More transparency might help the stock re-rate. The design of the company’s Vision Fund, launched late last year, does not suggest it will be forthcoming. SoftBank put $28bn of equity into this $100bn vehicle. Outside investors also put in equity, plus debt-like preferred securities. That leverage could enhance SoftBank’s returns, though it is hard to know by how much. Potential losses could be offset by management and performance fees payable by the fund to SoftBank, though these too are tricky to quantify.

Big profits, and cash flow, can be generated only by exits from the Vision Fund’s investments. The quantum and timing of these are unknowable, given its bold bets on technology. This exposure to “moon shot” ideas and hot tech trends, not readily available via other listed investments, is an often-touted reason to own SoftBank.

But such hope requires faith in Mr Son from public investors, and a willingness to suspend doubts about the capital structure. Do not expect SoftBank’s discount to narrow soon.

This item has been amended since publication to correct a typographical error in the second paragraph

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