Softbank, the telecoms and internet conglomerate, has admitted that Masayoshi Son, its chairman, has used some of his shares in the company as collateral for loans.
The company’s acknowledgement on Friday came on the day the Financial Times published an article saying he has lent up to one-third of his personal holdings, partly as collateral.
The admission could pummel Softbank’s share price next week. Mr Son’s large holding has acted as a bedrock of support for the company’s notoriously volatile shares.
The revelation that Mr Son has lent out of some his shares could further tarnish Softbank whose status as a darling of Japanese retail investors has risen and fallen with the chairman’s personal fortunes.
Softbank’s share price has already fallen about 30 per cent since the acquisition of Vodafone Japan, the struggling mobile carrier, was agreed in March.
Since that time, the share price has been extremely volatile. Last month, worries over accounting practices at Softbank sent the share price down 15 per cent in two days.
Softbank sent a confused message to the media on Friday in response to the Financial Times article. Initially, during trading hours, Softbank said it had not used Mr Son’s personal holdings in the company as collateral. This allowed the share price to closed up slightly on Friday, after falling sharply in early trading.
Later on Friday, the company admitted that Mr Son himself had put some of the shares he personally held in the company as collateral. A spokesman emphasised the money had not been used for Softbank’s own operations. He declined to comment on Mr Son’s personal motivation behind the move.
Regulatory filings with the Tokyo Stock Exchange show that 107m Softbank shares have been lent out to financial services companies - nearly all pledged by Mr Son, who holds some 330m shares, or roughly 30 per cent of the company. The filings also show that at least some of the shares have been used as collateral.
Investors are worried some of these shares could end up being seized by lenders. For example, under the funding agreement relating to Nasdaq-listed Gravity, the lending agreement is automatically scrapped if Softbank’s share price falls below Y2,000. The shares closed on Friday at Y2,220, up from the beginning of the week but Y150 below the price before its sharp drop in late August.
The Vodafone acquisition, funded by a $16bn leveraged buy-out, further strained Softbank’s already burdened balance sheet, provoking criticism by some analysts.
Analysts’ views about a fair value of Softbank’s stock are mixed. Lehman’s valuation is among the lowest, at a target price of Y900.