SoftBank to hold off on new investments in China amid tech crackdown

The giant Japanese investor and operator of the $100 billion Vision Fund is one of the world’s best-known funders of Chinese startups. But recently, the value of many of those investments has been tumbling fast, after Chinese regulators started investigating some SoftBank investee companies for breaches including anticompetitive practices, consumer protection and data-security problems.

The decline in many of those valuations came on top of a fall in the value of other highflying Vision Fund companies as the frenzy over some of tech’s hot listings cooled slightly, depressing SoftBank earnings in the latest quarter.

SoftBank Chief Executive Masayoshi Son made an early, savvy bet on Chinese e-commerce giant Alibaba Group Holding Ltd. The Vision Fund loaded up on multibillion-dollar stakes in Chinese unicorns like car-share giant Didi Global Inc. and short-video app TikTok owner ByteDance Ltd., hoping to make spectacular returns when the firms went public.

The China crackdown has become so unpredictable and widespread that SoftBank and its funds are planning to hold off on investing much more there until the risks become clearer, Mr. Son said at an earnings press conference in Tokyo.

Although China is still going to be a hub of technology and artificial-intelligence innovation, “in terms of investing, we’re seeing a lot of new regulations coming out," Mr. Son said. “I want to wait a bit longer to see what kinds of regulations there are, how far they extend, and what impact they have on the markets."

China isn’t the only headwind for SoftBank. Some of the Vision Fund’s star performers declined in value during the April-June quarter, including Coupang Inc., a Korean e-commerce company that netted the Vision Fund a $24 billion gain when it listed in March, and Auto1 Group, a German online used-car dealer that also earned the fund billions when it went public in February.

That sent SoftBank’s net profit down to 761.5 billion yen, equivalent to $6.9 billion—40% lower than the year-earlier figure and a fraction of the record-setting January-March quarter, when the company rode booming stock markets to multibillion-dollar gains on its investments. The Vision Fund and its $40 billion successor netted investment gains of around $2.6 billion in the latest quarter; the previous quarter they had logged gains of $58 billion.

Investors may be pulling away from some of the priciest new-economy stocks, said James Abate, founder and chief investment officer at New York-based asset manager Centre Asset Management. Centre sold some of its SoftBank stakeholding a few months ago, concerned that some of the Japanese company’s investments might be priced too high.

Another disappointment for many shareholders was SoftBank’s failure to unveil stock buybacks—something investors have been clamoring for since a massive $23 billion repurchase program was completed earlier this year. SoftBank’s stock price has fallen around 25% since its previous earnings announcement in May—a decline many investors and analysts attribute to the failure to announce buybacks then.

“If they don’t announce a buyback, there’s a high chance the stock will fall" again, said Atul Goyal, an analyst at Jefferies.

SoftBank’s shares closed Tuesday at ¥6,831, up slightly for the day but down more than 35% from the year’s peak.

Mr. Son said that SoftBank’s shares have fallen so low that the price is now only around half of the value of the company’s assets, after subtracting debt. Given that discount, SoftBank will unveil more share buybacks at some point, and is now discussing the timing and size, he said.

He also said that SoftBank will continue the furious pace of investment at Vision Fund 2, which has stakes in 161 companies and has been funding startups at a rate of nearly one per day in recent months. SoftBank will steer money toward Vision Fund 2 and continue to shrink the size of SB Northstar, another investment unit that has been taking stakes in listed companies such as pharmaceutical company Roche Holding AG.

But the pummeling of SoftBank’s Chinese tech investments threatens to dim prospects for returns for months to come. A Citibank report estimated Chinese tech companies accounted for 44% of the value of SoftBank’s investments as of the end of March—mostly owing to the Alibaba stake. They also make up a significant portion of the investments that the Vision Funds were counting on to generate future profits.

Alibaba’s share price has fallen almost 30% since its high in February, as regulators accused it of anticompetitive practices and levied a record fine. The stock of ride-sharing leader Didi, the Vision Fund’s top holding at nearly $12 billion, is trading one-third lower than its June initial-public-offering price after regulators punished it for what they described as data-security problems. The decline has put SoftBank’s stake slightly into the red.

Full Truck Alliance Co., a Chinese Uber-like app for trucks also known as Manbang, is trading around 30% lower than its June IPO price after Chinese regulators launched a cybersecurity probe against it similar to the one it is conducting against Didi. ByteDance earlier this year postponed indefinitely what was expected to be a blockbuster listing after regulators signaled it needed to deal with data-security issues, too. The Vision Fund invested billions of dollars in ByteDance and Full Truck Alliance.

“A lot of the gains that looked possible now look less likely," said David Gibson, an analyst at Astris Advisory Japan. He estimated that as much as $30 billion in expected gains from IPOs set to come this year may have evaporated.

This story has been published from a wire agency feed without modifications to the text