TOKYO -- SoftBank Group has long enjoyed the robust support of Japan's small investors, using the proceeds from its eagerly snapped up bonds to fund global acquisitions and investments.
But its mobile unit's disastrous stock market debut a month ago is threatening to end its win-win relationship with these investors.
Mobile phone service provider SoftBank Corp. went public Dec. 19 in Japan's biggest initial public offering and the world's second largest. SoftBank Group unloaded close to 40% of its shares in the unit, raking in about 2.6 trillion yen ($23.7 billion based on current rates).
Many of the new shares were picked up by retail investors in Japan, who hoped the highly-touted IPO would follow in the footsteps of Nippon Telegraph and Telephone's successful debut in 1987 and Japan Post Holdings' in 2015.
But SoftBank Corp. opened at 1,463 yen a share, 2% below its offer price of 1,500 yen. The stock tumbled further before closing at 1,282 yen -- off some 14.5% from the offer price. Japan's No. 3 mobile carrier has since rebounded somewhat but has yet to climb above the offer price, ending Friday at 1,429 yen.
"I thought I'd sell the shares to lock in a quick gain, but things haven't gone as planned," a 38-year-old investor said.
He and roughly 900,000 other individuals who poured a total of 2 trillion yen, or about $18 billion, into the shares are sitting on paper losses.
"We tell our clients to look at stock prices from a medium- to long-term perspective, but I do feel that we're responsible for cooling investor sentiment," said an executive at one of the IPO's underwriters.
These underwriters gave SoftBank Group too much sway and ended up setting the offer price "too high," said an official at a Japanese asset management company, echoing a growing view in the market. SoftBank Corp. is trading at about 16 times projected earnings, higher than bigger rivals KDDI, at 10, and NTT Docomo, at 13. The new stock's expected dividend yield has risen to 5.24%, but this has done little to cheer up its shareholders, who have yet to make any profit.
The IPO debacle will likely cast a shadow over the parent group's growth strategy, which relies heavily on retail investors. The parent floated its first bonds tailored to individual investors in 1995, when it tied up with Microsoft.
The conglomerate, headed by outspoken Chairman Masayoshi Son, has since tapped small investors to fund the launch of the mobile business and big acquisitions. It raised 700 billion yen from them for its 2013 purchase of U.S. mobile carrier Sprint.
Meanwhile, the group's high-yield bonds have been an attractive option for retail investors in the age of rock-bottom interest rates. SoftBank Group had a whopping 3.23 trillion yen in outstanding bonds for small investors as of the end of last year, according to I-N Information Systems -- nearly half the entire Japanese market for that particular instrument.
SoftBank Group's stock has skyrocketed about sixfold in the last 10 years thanks to its telecommunication-driven growth, far outpacing the Nikkei Stock Average, which nearly tripled over that period. Retail investors and SoftBank Group had a win-win relationship: individuals were happy to own SoftBank bonds and shares, and the company enjoyed a dependable source of funds.
But the IPO threw a wrench into that arrangement. "Because I have bought SoftBank Group's bonds, I didn't hesitate to invest in SoftBank [Corp.] shares," said a 66-year-old investor. "I know it was my mistake, but I also feel the group betrayed us. I can't help but be more cautious about any future investments in the conglomerate."
Such sentiment may foil SoftBank Group's hopes of tapping various fundraising options to drive new growth, such as through investments in artificial intelligence. The only way the group can win investors over is by lifting the unit's stock price.
SoftBank Corp. is taking the investor valuation of the company to heart, said Ken Miyauchi, the unit's chief executive. "We'll move forward as if this is a new beginning," he said.