Victor Galliano

Financials & FinTech, EM & Southern Europe

Galliano's Latin Notes

Equity Bottom-Up

<ul>
<li>4QFY22 saw the best result for the Vision Funds since 3QFY21; SVF private companies saw minimal valuation write-downs last quarter, and we suspect valuations may still be too optimistically marked</li>
<li>Masa’s debts to SoftBank stand at USD5.2bn in 4QFY22; in addition, the group’s credit risk exposure to troubled company WeWork was over USD1.1bn at fiscal year end and going higher</li>
<li>Softbank shares trade at a 46% discount to the stated NAV; with the Alibaba valuation “cushion” largely consumed, the potential Arm IPO is critical but private company valuations remain questionable</li>
</ul>

Private Capital Markets

<ul>
<li>We have already questioned SoftBank’s private company valuation marks; a Schroders trust recently announced a 46% valuation cut in its Revolut investment, acquired at the July 2021 funding round</li>
<li>SVF2 acquired 5% of Revolut, also in July 2021; third party valuation providers indicate that the Revolut USD valuation has fallen by at least 50% in 2022</li>
<li>July 2021 was Revolut’s most recent funding round, implying that Softbank may yet need to mark down its valuation; this could also apply to the funds’ other private companies</li>
</ul>

Event-Driven

<ul>
<li>Softbank Vision Funds 1 and 2 were the biggest combined holdings at December 2022, accounting for 30% of group equity value; SVF private companies accounted for 73% of equity value</li>
<li>To December-end 2022, public companies in SVF2 were marked down by 52% versus investment cost, whereas SVF2 private companies were marked down by a more modest 33% versus investment cost</li>
<li>We believe that SVF2 private company valuations are at risk of further markdowns in 4QFY22 results, with many of these investments made close to the period of peak pandemic valuations</li>
</ul>

<ul>
<li>Vision Fund II private companies accounted for 87% of the fund’s 3QFY22 fair value; versus investment cost, private companies’ downward valuation revisions have been more modest than the public companies</li>
<li>Vision Fund II accounted for 22% of the group’s 3QFY22 equity value of holdings, so any further downward valuation revisions would hurt group NAV and add to Masa’s Softbank liabilities</li>
<li>Softbank currently trades at a 42% discount to its stated NAV; we believe that the stated NAV is likely to be overstated, with private company valuations needing further scrutiny</li>
</ul>

Kirk Boodry

Telco/Internet specialist

Redex Research

<ul>
<li>HK markets fell to 13-year lows as President Xi solidified his hold on power, raising concerns for private businesses that have already struggled with harsher regulation</li>
<li>Softbank looks smart for its early settlement of Alibaba-linked derivative contracts in August as political worries have shares testing new lows</li>
<li>But exposure remains with Alibaba's 12% decline equal to $3.3bn (¥485bn) in lost value. Shares have rallied throughout October but China news appears to have stalled the move</li>
</ul>

Japan

SoftBank Group Corp. provides telecommunication services. The Company also operates ADSL (Asymmetric Digital Subscriber Line) and fiber optic high-speed Internet connection, e-Commerce businesses, and Internet based advertising and auction businesses.

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Softbank Group (9984 JP)

Softbank (9984 JP): Private Company Valuations Still in Question

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Softbank's SVF2 private companies, making up 87% of SVF2’s fair value, saw smaller negative valuation revisions than the public companies, is there...

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Concerns on the Chinese political and regulatory environment resurfaced today with double-digit declines for many tech names in HK. Softbank has...

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