SoftBank Without Son in Future Is on Minds of Bond Investors

(Bloomberg) -- Masayoshi Son is fond of talking about his 300-year vision for SoftBank Group Corp. but some Japanese bond investors are already pondering an earlier event -- what will the technology giant be like without its founder?

Son, 60, hasn’t named his successor at the company he founded in 1981 as a software distributor. While there’s no indication that Son has any intention of stepping down from his role as chief executive officer soon, his stated intention to retire in his 60s put the matter in focus when the SoftBank sold six-year yen bonds this month.

While bond buyers have at times bemoaned Son’s willingness to take on massive debt to fund acquisitions, they are growing increasingly concerned about how his eventual successor will manage the company’s expanding investments.

Son repeated his retirement plan at an earnings briefing in February, though he added he will be involved with the company for the rest of his life. The succession plans are only part of what worries local institutional investors, with the carrier’s move to become the manager of the world’s largest technology investment pool also raising concerns about SoftBank’s focus.

“Son has brought SoftBank to where it is today through his superb judgment and sense of balance on investments,” said Takahiro Oashi, senior fund manager of Asahi Life Asset Management. “It may stumble without his leadership.”

SoftBank Without Son in Future Is on Minds of Bond Investors

SoftBank spokesmen didn’t reply to several requests for comment by phone and email.

The possibility that Son could pull back from leading SoftBank was cited by several yen investors as a risk when the company sold Japanese-currency notes earlier this month. SoftBank has had no trouble paying its debt or selling bonds to Japanese individual investors, but demand for its yen offering to institutions this month was weak.

SoftBank’s net debt has swelled more than six times to 13.7 trillion yen ($125 billion) in the past five years, according to Bloomberg-compiled data. The company sold a 410 billion yen bond earlier this month to individuals, while a 40 billion yen note offered to professional buyers garnered orders only totaling 1.2 times the issuance size, according to the deal underwriter.

SoftBank Without Son in Future Is on Minds of Bond Investors

More than 90 percent, or 3.63 trillion yen, of SoftBank’s outstanding yen bonds are retail securities that target individuals, including a 400 billion yen note that matures on June 20. Son has often claimed that SoftBank’s true debt load should be seen as negligible because of its huge unrealized gains in investments including in China’s Alibaba Group Holding Ltd. Those gains totaled 17.9 trillion yen as of June 14, according to SoftBank’s website.

“No one knows whether the company will stay the course or start to move in a completely different direction in case Son retires,” said Katsuyuki Tokushima, chief investment analyst at NLI Research Institute. “Bonds of any firm being led by a charismatic leader essentially carry the same risk as SoftBank.”

The risk of a SoftBank default on its debt in the coming 12 months is now about 0.08 percent, down from 0.4 percent in September 2016, when SoftBank acquired the U.K.’s ARM Holdings Plc for about $32 billion, according to the Bloomberg default risk model, which tracks metrics including share price, debt and cash flow.

Two years ago, heir apparent Nikesh Arora suddenly left SoftBank after Son opted to stay atop the firm. Son said in a statement at the time that he wanted “work on a few more crazy ideas” and needed to remain as CEO for at least another five to ten years to do so.

New Appointments

Last year he formed the Vision Fund, which has come up with more than $90 billion including contributions from Saudi Arabia and Apple Inc. On June 1, SoftBank announced the appointment of three executive vice presidents -- Chief Operating Officer Marcelo Claure, Vision Fund CEO Rajeev Misra, and Chief Strategy Officer Katsunori Sago -- pending shareholder approval, which generated speculation about Son’s succession plans.

SoftBank’s board already includes some of Japan’s best managers including Fast Retailing Co. founder Tadashi Yanai if Son were to depart, according to Amir Anvarzadeh, a senior strategist at Asymmetric Advisors in Singapore.

“The company would have to consolidate and find an investment manager that would come and take over these venture capital assets,” said Anvarzadeh. “SoftBank would be run much more conservatively.”

©2018 Bloomberg L.P.