“Japan’s SoftBank is famous for paying sky-high prices for its overseas acquisitions,” says Jacky Wong in The Wall Street Journal. In 2016, for example, the technology conglomerate paid almost £24bn for the largest British tech company, chip designer ARM Holdings. Now it is hoping investors will return the favour and pay up for its domestic mobile telecoms unit, Softbank Corp – Japan’s third-largest mobile phone carrier. The Tokyo Stock Exchange has approved an initial public offering (IPO) of 35% of the unit for as much as $23bn. That would make it Japan’s biggest-ever IPO, and globally second only to Chinese internet giant Alibaba’s $25bn New York listing in 2014. The stock will start trading on 19 December.
SoftBank hopes to boost its appeal by paying out 85% of net profit as dividends. At the current indicated IPO price that would give it a yield of almost 5%. That’s a healthy dividend anywhere, says Pavel Alpeyev on Bloomberg. “In Japan, the land of negative interest rates, it’s dazzling.” Yet the timing is not ideal – the Japanese government has repeatedly complained that mobile phone bills are too high, and earlier this month rival carrier NTT Docomo said it planned to cut its rates by 40%, sending its share price tumbling. Softbank has said it will cut costs by laying off about 40% of its wireless business workforce, but clearly that carries its own risks. What’s more, as Wong notes, the current price tag looks way “too steep”, valuing the whole unit at nearly $63bn. If Softbank instead attracted roughly the same valuation as its rivals – NTT Docomo and KDDI – then its equity value could be as low as $25bn, after subtracting its net debts of $27bn.
Good news for challenger banks
That would be bad news for SoftBank chief executive and Japan’s richest man, Masayoshi Son, whose ultimate aim is to use the money raised by the sale of the mobile unit to pay down debt and to add to his network of technology investments. Son, who has described SoftBank as an “information revolution company”, has already used the company’s $100bn Vision Fund – part-financed by Saudi Arabia’s government – to invest in risky private tech giants such as US ride-hailing company Uber, workplace messaging system Slack and trendy “shared workspace” provider WeWork. Son also hopes to bolster SoftBank’s own share price, notes Taiga Uranaka on Reuters. In June, Son argued that the company was undervalued by more than 40% given its investments in the likes of Alibaba and Yahoo Japan.
If Softbank does pull off the IPO, it’ll be good news for the wider tech sector – including a pair of British contenders. Revolut (a digital bank) and OakNorth (a specialist bank) have already held talks with Softbank’s fund about a potential investment, according to Harry Wilson in The Times. “This provides a significant vote of confidence in the UK’s growing band of online-only challenger banks.”