Investor Confidence in Masayoshi Son in SoftBank’s Big Options Bet Test

(Bloomberg) –

When investors felt that Masayoshi Son was at risk in SoftBank Group Corp, the Japanese billionaire’s entry into highly leveraged derivatives is giving him fresh cause for concern.

SoftBank shares plunged 7.2% in Tokyo on Monday, erasing nearly $ 9 billion of market value. The decline came after massive bets were made on high-flying technology stocks using equity derivatives – and despite a report that it has billions in profit.

Son’s career has been full of head-on acquisitions and strategic shifts, but the 63-year-old has spent much of this year taking investor-friendly steps, which he eventually seems to be listening to shareholders like Activist Elliott Management Corporation. The move has touched on concerns that SoftBank is making another risky effort that could lead to its loss on office-sharing startup WeWork. According to people familiar with the case, the son himself is leading the business doing options with a younger employee.

“Son is a speculator – this visionary is not what everyone claims he is,” said Aamir Anwarzadeh, a market strategist at Asymmetric Advisors in Singapore who has been covering SoftBank since it went public in 1994. “This is yet another proof, as it is never far from action when the bubble is formed.”

SoftBank revealed in August that it was setting up an asset management arm to trade public securities and noted that it could use derivatives. The concern that shareholders have raised is that the son appears to be exercising options to increase his exposure in a corner of the market, where valuations have gone up and mutual individual investors are playing a bigger role. SoftBank has not disclosed the details of its business and the company declined to comment for this story.

Son’s announcements earlier this year that he would sell assets worth 4.5 trillion yen ($ 42 billion) and the withdrawal of 2.5 trillion yen shares helped Softbank’s stock recover from a fall following the Wework missteps and coronavirus outbreak . The stock more than doubled since March, touching the highest level in two decades last month.

It is certain that SoftBank’s options bets have left the company at risk. In fact, derivatives are designed to help investors prevent the risk of sudden stock moves or increased volatility. SoftBank’s derivatives trading began in June with relatively conservative positions, such as collar trades, according to a person familiar with the matter, who asked not to be identified because the details are private.

The Financial Times reported that SoftBank spent about $ 4 billion on options focused on tech stocks, with a total investment of about $ 30 billion. The newspaper quoted people familiar with the matter as saying that the company was sitting at a profit of about $ 4 billion.

Since founding Softbank in 1981, Son has experimented with dozens of businesses. He began his career in software distribution, trade shows and magazines before expanding into telecommunications and startups. He built his reputation when he placed bets in hundreds of participating companies, including the Chinese e-commerce giant Alibaba Group Holding Limited.

Son’s big bets at times tricked his investors. In 2006, SoftBank acquired the Japanese wireless operations of Vodafone Group plc, the largest leveraged buyout in Asia at the time. Some gave him a chance to turn around the troubled business, but he was successful in getting exclusive rights to the first iPhone in Japan.

He tried a similar playbook with the purchase of wireless operator Sprint Corp in the US, but the change proved to be far more difficult and Son sold the business this year. Four years ago his $ 32 billion purchase of chip designer Arm Ltd sent his stock for tumbling, and he is now in talks to sell the business.

In another controversial move, he set up a $ 100 billion vision fund to wager scores of tech startups. The fund reported losses of $ 17.7 billion for the fiscal year ended in March, including value including WeWork and Uber Technologies Inc. The outlook for one type of investment has brightened due to a market boom that helped boost startup valuations. Demand for initial public offerings.

Jefferies senior analyst Atul Goel said, ‘SoftBank keeps on changing its strategy and we are now a long way from’ placing minority bets in technology startups’. Nevertheless, Goyal said that as long as the company remains committed to its buyback program, betting against SoftBank’s shares was risky.

As to the potential impact of SoftBank on the broader stock market, the idea that any one option buyer can roam widely in the market has raised doubts in the past. Many analysts have reported that the heights of large institutional players are relatively low compared to the rest of the market.

Heavy swings in options-overrun stocks leave manager

But as the volume has increased in specific stock options over the summer, some analysts have begun to revise their thinking.

“Softbank has a reputation for taking large, unilateral bets. Ilya Spivak, Asia Asia’s strategist at DailyFX, said that if market participants saw what they were doing – they were throwing around big directional performance and trying to ride their coattails somewhat. “But can they be solely responsible for running the market in one direction? A very distant voice comes. “

It is clear that the news of Softbank’s situation has dismissed a spate of market uncertainty, with questions about Son’s exposure and his plans for future trading.

Jim Reid, a global strategist at Deutsche Bank AG, said, “Now that these trades are exposed, they are likely to affect the business, so that a bumpy ride can be expected going forward. A note . “Experience suggests that we have not heard the last part of this story and that such incidents often have unintended consequences.”

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