Photo: REUTERS/Kim Kyung-Hoon

SoftBank Vision Fund reports $26 billion loss; Son's more cautious pledge, however, does not reach LatAm's fair value 'oasis' for now

From the $8 billion committed to the region, $6.9 billion was already invested. The company informed LABS that there are no signs of a slowdown ahead.

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Japan’s SoftBank Group Corp reported a record $26.2 billion loss at its Vision Fund investment arm on Thursday, as rising interest rates and political instability whiplashed high-growth tech stocks. The loss was in stark contrast to a year earlier when SoftBank delivered a record annual profit, putting founder and CEO Masayoshi Son‘s strategy of concentrating heavily on riskier, high-growth stocks under more scrutiny. Despite Son’s message of “preparing for the worst,” Latin America has proved to be an ‘oasis’ in terms of investment valuing. As most of the committed volume ($6.9 bln out of $8 bln) has already been invested in the region, there are no signs of a slowdown for the remainings of the second fund.

Worldwide, investors are increasingly questioning whether many of the once high-flyers SoftBank has invested in have a clear path to profitability. South Korean e-commerce firm Coupang was trading 70% below its listing price, and ride-hailers Didi and Grab also tumbled during the January-March quarter.

“When the world is in disorder, SoftBank should play defense,” Son said at a subdued briefing following the earnings announcement, pledging to bolster the group’s cash position through asset monetisation and tighten investment criteria. On Thursday, he repeatedly emphasized the group’s financial prudence and the prospects for chip designer Arm, which SoftBank hopes to list in the United States.

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SoftBank was likely to invest half or even a quarter as much as last year, Son said, as part of a pledge to keep the group’s loan-to-value ratio, which was 20.4% at March-end, below 25%.

Vision Fund has 475 companies in its portfolio and made 43 investments during the fourth quarter. It is slowing the pace of investment as private prices lag the fall in public markets. While 20 portfolio companies raised funds at higher valuations during the quarter, SoftBank also marked down some of its unlisted assets, in sectors such as consumer, fintech and transportation, contributing to the record loss.

A new, more cautious than ever SoftBank? Not so much in Latin America

The Vision Fund unit’s assets, including the Latin American funds, were worth $175.6 billion in March. That compared to an acquisition cost of $141.6 billion. However, the specific numbers of LatAm show a much better performance than other SoftBank investments in startups and tech companies.

In September last year, SoftBank announced that it would allocate an additional $3 billion fund, labeled SoftBank Latin America Fund II, to invest in LatAm. The leading VC investor in the region — with 30 Series A and up deals only in 2021 and more than 32 unicorns in its portfolio since its arrival — has already spent more than half of its second fund on LatAm’s startups. Only 2022’s first semester, around $250 million was invested in the region.

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Eduardo Vieira, SoftBank‘s lead marketing and communications partner for Latin America, told LABS that the remaining $1.1 billion should follow the same (accelerated) pace. “Our unwavering and long-term commitment is ongoing. Undoubtedly, the world is experiencing a chaotic situation. Still, if we compare the results of Latin America with SoftBank‘s other global investments, we will see that the region is an oasis [in terms of the market value of investees]. The challenges here are structural, deep, they need startups and genius entrepreneurs, and now we have a fair volume of capital for the region.”

SoftBank‘s Latin America Funds invested $4.3 billion in the fiscal year ($6.9 billion since their inception), with 65 new deals. They currently hold a total of 101 investments in the region (including seven listed companies), amounting to a fair value of $9.4 billion.