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SoftBank shares tumble on Saudi ties and tech sell-off

Headwinds hit Japanese conglomerate's $100bn fund ahead of mobile unit IPO

Saudi Crown Prince Mohammed bin Salman and Masayoshi Son, chairman and CEO of SoftBank Group, attend the Future Investment Initiative conference in Riyadh in October 2017.   © Reuters

TOKYO -- SoftBank Group's shares tumbled on Monday, hit by concerns over the Japanese technology company's links to Saudi Arabia -- which is under fire over a missing journalist -- and a wider global equity share sell-off.

Concerns over Saudi participation in SoftBank's flagship $100bn Vision Fund helped to push its shares down by 8% at one point, a near three-month low, before recovering to close 7.2% lower. The slide was steeper than the benchmark Nikkei Stock Average's 2% decline. SoftBank's fall also comes on top of a near 10% decrease last week, which was driven by a broader sell-off in Asian technology stocks.

SoftBank, founded by entrepreneur Masayoshi Son, launched the Vision Fund two years ago. The unprecedented scale was made possible by Saudi Arabia, which committed $45 billion from a sovereign wealth fund. In a recent interview with Bloomberg, Saudi Arabian Crown Prince Mohammed bin Salman indicated that he was prepared to invest another $45 billion into a second Vision Fund.

SoftBank-Saudi ties have become a source of concern, however, amid mounting criticism over the Saudi government and its suspected link to missing journalist Jamal Khashoggi, who disappeared after entering the Saudi consulate in Istanbul. In an interview televised on Sunday in the U.S., President Donald Trump said Washington would inflict "severe punishment" on Saudi Arabia if a link to Khashoggi's disappearance is discovered. Top executives of several U.S. companies, including Ford and J.P. Morgan, have pulled out of the Future Investment Initiative conference in Riyadh, scheduled to start on Oct. 23.

The SoftBank Vision Fund's portfolio includes an array of U.S. technology companies that could come under scrutiny if U.S.-Saudi relations turn sour. The group includes the likes of ride-hailing pioneer Uber Technologies, co-work space provider WeWork, chipmaker Nvidia and GM Cruise, the autonomous driving unit of General Motors that Honda Motor recently invested in.

Tomomi Yamashita, a fund manager at Shinkin Asset Management, said "the growing uncertainty regarding SoftBank's main sponsor for its funds" was a reason for the stock's decline.

The SoftBank stock slide on Monday was also fueled by a broad sell-off of Asian stocks, which defied a rebound on Wall Street on Friday.

This can be blamed on U.S. Treasury Secretary Steven Mnuchin's recent remarks, according to Yoshihiro Okumura of Chibagin Asset Management.

Over the weekend, Mnuchin said the U.S. was moving to prevent competitive currency devaluations by inserting specific language into trade deals. Mnuchin's words have put paid to expectations of a further decline in the Japanese yen. Japanese exporters earn more when their home currency weakens.

Both Hong Kong's Hang Seng Index as well as China's Shanghai Composite fell over 1% at one point on Monday.

SoftBank's shares were among those hit last week when investors turned against high technology sector valuations in the U.S. and Asia. SoftBank's market value is influenced by that of its publicly listed investments, which include Alibaba Group Holding and Yahoo Japan.

"SoftBank is aiming to make its Vision Fund the company's main source of profit," said Tomoaki Kawasaki, a senior analyst at Iwai Cosmo Securities. "A volatile market means more chances of stocks they invest in, like Alibaba, falling. That can dampen SoftBank's future earnings outlook as well as its stock price."

The rocky trading sessions are particularly ill-timed for SoftBank, which is looking to list its mobile unit in an initial public offering in Tokyo. Some analysts estimate the share sale could fetch up to 2.8 trillion yen ($25 billion), which would challenge Alibaba Group Holding's 2014 IPO as the largest listing in history.

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