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SoftBank shares hit 18-year high on Vision Fund tailwind

Masayoshi Son's group expects $11bn Alibaba windfall next fiscal year

SoftBank founder and CEO Masayoshi Son speaks at an earnings conference in Tokyo on Aug. 6. (Photo by Maho Obata)

TOKYO -- SoftBank Group shares have risen to levels not seen since the dot-com bubble as the group's pivot to technology investment drives earnings, with a big gain on its stake in Chinese e-commerce leader Alibaba Group Holding also expected next fiscal year.

For years, SoftBank's stock price tended to track those of Alibaba and Yahoo Japan, two of its early and most valuable investments. But last year's establishment of the tech-focused $100 billion Vision Fund has put Masayoshi Son's group on its own independent upward trajectory.

Among the fund's notable investments are Indian e-commerce player Flipkart -- which was sold to Walmart this year -- and WeWork, a U.S. provider of shared office space.

The Saudi-backed Vision Fund generated 239.9 billion yen ($2.13 billion) in operating profit in the April-June quarter, making it the group's top-earning segment. That result surpassed the 221.7 billion-yen profit earned by the group's Japanese telecommunications business, which has long served as its cash cow.

Investments made outside of the Vision Fund, such as those in ride-hailing companies Uber Technologies and Grab, have also added to group earnings.

SoftBank shares have bucked declines in Alibaba and Yahoo Japan in recent sessions following news of a changing of the guard at both internet companies.

Alibaba founder and Chairman Jack Ma Yun announced his retirement on Sept. 10, while Altaba, the U.S. company rebranded from Yahoo after last year's acquisition of core internet operations by Verizon, said on Sept. 11 that it is unloading all shares in Yahoo Japan.

SoftBank touched 11,115 yen at one point in Tokyo trading Wednesday, marking its best showing since March 2000 when adjusted for stock splits.

The success of the Japanese company's investment activities has raised expectations for synergies with its domestic telecom business, which SoftBank plans to list in an upcoming initial public offering. The telecom unit and Chinese ride-hailing leader Didi Chuxing have formed a Japanese joint venture with the aim of creating on-demand taxi hailing powered by artificial intelligence. WeWork recently expanded into Japan.

More collaboration among Vision Fund holdings appears to be on the horizon. Analysts predict SoftBank will expand business operations beyond telecommunications and investments to maintain growth.

SoftBank is expected to realize a $4.8 billion gain during the fiscal year ending March 2020 on derivatives linked to a partial sale of its Alibaba stake. Paper profits on the investment, which totaled $6.9 billion based on Alibaba's share price at the end of June, are also expected to rise as a result. In all, the windfall could amount to around around $11.7 billion for SoftBank.

The Alibaba-linked derivatives hit SoftBank with a loss of roughly 500 billion yen in the April-September half of 2017, contributing to an 87% drop in net profit. The upcoming transaction will remove this volatile factor.

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