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Saudis change from patron to liability for Softbank's ambitions

Vision Fund secures $9bn credit line from Japanese and international banks

SoftBank Group CEO Masayoshi Son, right, and Saudi King Salman meet in Saudi Arabia in March 2017.   © Kyodo

TOKYO -- Growing suspicion of Saudi Arabia regarding the disappearance of a dissident journalist has cast a shadow over Japanese tech investor Masayoshi Son's global investment strategy, which rests on the Saudi-backed SoftBank Vision Fund.

"We are anxiously looking at what is happening," Chief Operating Officer Marcelo Claure told reporters in the U.S. on Tuesday. "I think it's too early," he said on whether the company should change course.

As companies around the world start to distance themselves from the Saudis, Son is facing the reality that the "iron triangle" he has so tirelessly built -- involving the Riyadh-friendly Trump administration, Saudi Crown Prince Mohammed bin Salman and Son himself -- is quickly turning from a huge strategic asset to an albatross.

How the apparent death of Jamal Khashoggi at a Saudi Consulate in Istanbul -- allegedly at Riyadh's hands -- will affect the SoftBank Group chief's $100 billion Vision Fund remains unclear.

Prince Mohammed told Bloomberg this month that Riyadh is interested in contributing to another Vision Fund. "We'd rather not comment" on a second fund, and nobody has said there is a specific date for its closing, Claure said.

Khashoggi's disappearance has prompted many business and political leaders to distance themselves from Riyadh. U.S. Treasury Secretary Steven Mnuchin and JPMorgan Chase CEO Jamie Dimon are among those who have withdrawn from the Future Investment Initiative, an economic forum dubbed "Davos in the Desert" taking place in Riyadh next week. Son is still set to attend.

The fragile situation of the Saudi case has made it more important for Son to secure alternate funding options for the Vision Fund, a plan B should he have to unwind the money from Riyadh.

Sources say SoftBank has secured a roughly 1 trillion yen ($8.9 billion) committed credit line for the fund, involving Goldman Sachs, JPMorgan Chase and Deutsche Bank, along with Japan's Nomura Holdings, Mizuho Financial Group and Sumitomo Mitsui Financial Group.

Shares held by the Vision Fund in companies such as chip design house Arm and ride-hailing giants Uber Technologies and Didi Chuxing have been offered as collateral.

SoftBank negotiated the credit line while planning an initial public offering of its mobile unit and seems to have taken contributions to the credit line into consideration when selecting underwriters. Nomura, Goldman Sachs, Mizuho, Deutsche Bank and SMFG were reportedly chosen as lead underwriters for the IPO.

The Vision Fund, which launched in May 2017, has invested in leading startups around the world. Son has expressed an aim to create a new business group with SoftBank at its core.

The fund has been closely linked to Saudi Arabia since its inception. The country's Public Investment Fund has contributed $45 billion, and the crown prince enjoys a good rapport with Son.

The two met on Sept. 3, 2016, when the then-deputy crown prince met with business figures in Japan. Son had been scheduled to travel to Russia with Prime Minister Shinzo Abe that day but canceled at the last minute to meet with the Saudi royal, seeing him as a potential partner for the Vision Fund. Son and the man many call "MBS" have remained close ever since.

In 2017, Masayoshi Son attended the "Davos in the Desert" conference in Riyadh, where he met with Saudi Crown Prince Mohammed bin Salman.   © Reuters

The SoftBank chief has also built political ties in the U.S., the Vision Fund's biggest investment destination. After Donald Trump won the November 2016 presidential election, Son leveraged his connection with a sponsor of Trump's campaign to arrange a meeting, where he pledged to invest heavily in the U.S. and create American jobs.

Son signed the deal to launch the fund at the royal palace in Riyadh in front of Trump and Saudi King Salman -- a symbol of the investment triangle he labored to create through personal connections with U.S. and Saudi leadership. But the growing antipathy toward Saudi Arabia risks throwing a wrench in his plans.

Despite the Federal Reserve's gradual tightening of monetary policy, the U.S. remains awash in cash. Big startups can afford to be choosy about fundraising, and a venture's roster of investors serves as a mark of status. An aversion to Saudi money would hamstring the Vision Fund.

Trump's support for Saudi Arabia has shown few signs of wavering, but suspicion is mounting over his long-standing ties to the country via his real estate business.

Politics in Riyadh likely pose the biggest risk. Should the crown prince be ousted, the investment strategy he spearheaded with Son in Saudi Arabia could fall apart. The Japanese entrepreneur's next move is being awaited with bated breath.

Nikkei staff writer Hiromi Sato in Palo Alto contributed to this article.

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