SoftBank will take a “wait and see” approach and pause its investments in Chinese tech startups until Beijing’s current regulatory crackdown on the sector calms, chief executive Masayoshi Son said on Tuesday.
Son hoped the situation will be resolved and new rules for the sector would be introduced within “a year or two”, but still had “very high hopes” for China, where the Japanese conglomerate’s overall portfolio is still generating a profit, he said in a conference following the group’s earnings announcement.
“We will remain cautious until we can judge how deep and far the regulations will go . . . and we hope to actively resume investments when things become clearer,” Son said.
SoftBank’s Vision Fund division recorded a 236bn yen ($2.14bn) profit in the first quarter, down from a record $8bn in May, as its gains from various IPOs were dragged down by falling valuations after Beijing’s regulatory crackdowns.
The Japanese group outlined gains from Vision Fund investments listing in New York in the first quarter, including Chinese ride-hailing group Didi and Full Truck Alliance – but Chinese regulatory action on Didi subsequently overshadowed its IPO and caused tumbling valuations in the group’s regional portfolio.
Although the China crackdown affected returns expectations, Vision Fund Chief Financial Officer Navneet Govil said, “our broader thesis in China is unchanged: It’s still a large, growing and compelling economic opportunity.”
Meanwhile, SoftBank tries to shed some of its cumbersome stake in Chinese e-commerce giant Alibaba – which represents around 39 per cent of the group’s asset value.
Investments in Chinese startups make up around 23 per cent of the Vision Fund’s portfolio, but only around 11 per cent of the group’s new investments in the last quarter have been focused on China, Son said.
Net profit slid down 39 per cent from the same period last year, after SotBank experienced huge gains from the US merger of T-Mobile and Sprint at the time.
SoftBank’s shares have also plunged by a third from their two-decade highs in March amid the completion of a record 2.5 trillion yen buyback. Shares were up 0.9 per cent ahead of the earnings announcement.
It comes as SoftBank’s $40bn second vision fund pushed the pedal on its investments in recent weeks, injecting a total of around $14.2 bn in at least 47 new companies in the last three months – some of whom are yet to be named.
Late last week, the Japanese investment giant announced plans to invest $100m from its second vision fund in a new consumer tech fund launched by one of its former managing partners Jeff Housenbold.