Greensill Capital collapse causes more problems for SoftBank

The Greensill imbroglio has derailed a rebound at Softbank, the Japanese conglomerate and technology investor, says Matthew Partridge.

Masayoshi Son, SoftBank CEO
Softbank’s CEO Masayoshi Son faces another setback
(Image credit: © Alessandro Di Ciommo/NurPhoto via Getty Images)

SoftBank Group is likely to sustain a “damaging loss” from the collapse of Greensill Capital, which provided supply-chain financing and related services, say Nabila Ahmed and Harry Brumpton on Bloomberg. The technology conglomerate and investor not only put $1.5bn into the doomed company, but also invested “hundreds of millions of dollars” into funds Greensill ran with Credit Suisse. However, while founder Lex Greensill claimed that his company was valued at “roughly $7bn” as late as October, Greensill declared bankruptcy earlier this month, which means that SoftBank’s stake is now “worthless”.

The Greensill stumble is not only a “setback” for SoftBank and its founder and CEO Masayoshi Son, says The Wall Street Journal, but it also spoils what, until now, has been a “dramatic comeback” over the past year, . SoftBank’s shares “plunged” during the first part of the pandemic and its “big bets” on ride hailing and hotels “floundered as the economy froze”. However, it managed to raise cash through a “massive series of asset sales”, while some of its other tech bets “flourished” as economies started to reopen. SoftBank’s Vision Fund recorded a $13bn gain on its investments in the last three months of 2020, its best quarterly showing since its inception in 2017.

A big payday

While the collapse of Greensill is certainly embarrassing, SoftBank’s pain may be cushioned by a “big payday” from one of its other investments, says Eric Savitz in Barron’s. With China’s economy bouncing back, ride-sharing company Didi Chuxing is reportedly accelerating its plans for an initial public offering (IPO) as soon as the second quarter of 2021, targeting a valuation “of more than $62bn. If it manages to achieve this amount, SoftBank’s 20% stake in Didi Chuxing would then be “worth about $12bn”. Meanwhile, real-estate firm Compass, another SoftBank investment, has already filed for a flotation.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

And it looks as though SoftBank may even be able to salvage something from its notorious investment in WeWork, says Callum Jones in The Times. The property-rental company specialising in shared workplaces was valued at $47bn at one stage. However, a planned IPO had to be scrapped in November 2019 after investors got cold feet, with the result that instead of collecting a payoff, SoftBank was forced to step in and bail out WeWork with additional funds. The latest plans would see WeWork finally list through a merger with a “special purpose acquisition company [SPAC]”, valuing it at $9bn.

Both WeWork and SoftBank may hope the deal will allow them to draw a line under the “lavish spending, record of losses and the erratic behaviour” of co-founder Adam Neumann, who was ousted when the original IPO fell through, says the Financial Times. But there is “no guarantee” that this new deal will go ahead. And if WeWork, which lost $3.2bn last year, is to turn a profit, it will need to boost occupancy from 47% to 90% by the end of 2022, “well above” its pre-pandemic level.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri