San Francisco/Tokyo: SoftBank Group Corp. said it will form a new fund to invest as much as $100 billion in the global technology industry in the next five years, partnering with Saudi Arabia’s public investment fund to find companies that will become influential in the future.
The Saudi government will consider putting money into what is tentatively named SoftBank Vision Fund and become the lead investment partner, SoftBank said in a statement on Friday. The Tokyo-based company, which will invest as much as $25 billion, signed a non-binding memorandum of understanding with the Saudis, who may put in as much as $45 billion over the next five years. Other large global investors may participate to increase the pool to $100 billion.
SoftBank has made tens of billions in returns from investments in companies including Alibaba Group Holding Ltd, Yahoo and Supercell Oy, and the Vision fund will likely pursue a similar strategy of backing technology companies at all stages. The announcement comes just three months after Son made the biggest bet of his life with the $32 billion acquisition of chipmaker ARM Holdings Plc, a wager on the future of interconnected devices.
“It’s conceivable that after capturing the core of the Internet of Things with ARM, he will next look to other semiconductors, electronic components and software," said Hideki Yasuda, an analyst at Ace Research Institute in Tokyo. “SoftBank has a proven track record of investment successes. They are looking for another Alibaba."
SoftBank shares rose as much as 2% in early Tokyo trading. The stock had gained 5.8% this year before Friday, compared with a 12% decline in the benchmark Nikkei 225 index.
The mega-fund, which may target some companies traditionally backed by venture capital firms, comes during a record year for the venture industry. US venture firms raised $32.4 billion through the third quarter of 2016—an amount which is on pace to be the largest of any since the dot-com boom, according to trade group National Venture Capital Association.
SoftBank declined to comment further, noting the fund had not yet closed. The company said in a statement to the Tokyo Stock Exchange that the fund will be reflected on its consolidated financial statements, without giving further details.
Balance sheet strain
SoftBank is stepping up investment activity even though it has more than $100 billion in debt. The company has relied on borrowing and earnings from its domestic telecom operations to pay for investments in start-ups in India, US and China while balancing losses at its US subsidiary Sprint Corp.
The company’s high-speed internet and wireless services in Japan generated 1.16 trillion yen ($11.2 billion) of earnings before interest, taxes, depreciation and amortization in the fiscal year ended 31 March. SoftBank has 3.5 trillion yen of bonds maturing in the next five years, according to data compiled by Bloomberg.
Saudi Arabia is preparing itself for the twilight of the oil age by expanding its Public Investment Fund, which could eventually control more than $2 trillion, Deputy Crown Prince Mohammed bin Salman told Bloomberg News in April. The fund made a $3.5 billion investment in ride-share company Uber Technologies Inc. in June.
“Over the next decade, the SoftBank Vision Fund will be the biggest investor in the technology sector," Masayoshi Son, chairman and chief executive officer of SoftBank, said in the statement. “We will further accelerate the information revolution by contributing to its development." Bloomberg