SoftBank shares jump by 11% with repurchase of DKK 9 billion USD

The SoftBank Corps logo is pictured at a news conference in Tokyo, Japan, on February 4, 2021. REUTERS / Kim Kyung-Hoon

  • Buyback is SoftBank’s second largest ever
  • SoftBank crashed to quarterly losses
  • Shares have lost 40% since the end of the Y2.5 triln program in May
  • Stocks lack catalyst in the midst of China’s repression, delay in arms sales

TOKYO, November 9 (Reuters) – SoftBank Group Corp (9984.T) shares jumped 10.5% on Tuesday, the first trading session, after the Japanese conglomerate said it would spend up to 1 trillion yen ($ 8.8 billion) to buy back nearly 15% of its shares.

The company announced the buyback, which the market has long speculated about after revealing its quarterly earnings crashed to a loss due to a fall in the share prices of its portfolio companies and a regulatory intervention in China.

SoftBank’s shares closed at 6,808 yen in its biggest daily rise in 11 months, lifting the group’s market value above $ 100 billion. Tuesday’s trading volume was more than double the 30-day average.

The buyback is SoftBank’s second-largest after a record-breaking 2.5 trillion-yen buyback launched during the deep last year of the COVID-19 pandemic. Teknikgruppen’s shares quadrupled during this buyback, but have since fallen 40% from a peak in May.

“Our analysis of repurchase history indicates that SBG shares are performing (and performing better than the index or BABA) during repurchases,” Jefferies analyst Atul Goyal wrote in a note citing Alibaba (9988.HK), the group’s largest asset. SoftBank owns about a quarter of Alibaba’s shares.

The decline in the Chinese e-commerce giant’s shares and the broader regulatory setback in China contributed to a $ 57 billion drop in SoftBank’s net assets to $ 187 billion, a goal that CEO Masayoshi Son has said is the primary measure of SoftBank’s success.

Reuters graphics

The repurchase period for the most recent repurchase runs until November 8 next year, when the group signals that the program may take longer than the quick repurchases last year.

The buyback “is good support, but it’s not rocket fuel,” LightStream Research analyst Mio Kato wrote on the Smartkarma platform, adding “there are significant downside risks if broader technology, particularly unprofitable technology, falters.”

Speculation that SoftBank could launch a buyback has been raging for months as the rebate – the difference between the value of its assets and the share price – has lingered on to frustration among executives and as investors push for buybacks.

Ongoing uncertainties include the prospect of obtaining regulatory approval for the $ 40 billion sale of chip designer Arm to Nvidia. (NVDA.O).

Delays in the sale “may have given Softbank the flexibility to announce a buyback now with expectations of increasing share purchases later,” Redex Research analyst Kirk Boodry wrote in a note.

SoftBank is increasing its investments through Vision Fund 2, which has $ 40 billion in committed capital from the group and Son itself, even though it is winding down the operations of the trading division SB Northstar.

“Even if the company manages its finances with some degree of discipline, stock repurchases are likely to erode the financial buffer if they were executed,” S&P Global Ratings analysts wrote in a note.

The conglomerate had more than 5 trillion yen in cash and cash at the end of September, an increase of 9% compared to six months earlier.

($ 1 = 113.3500 yen)

Reporting by Sam Nussey; Edited by Sam Holmes, Stephen Coates, Jane Wardell and Raju Gopalakrishnan

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