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The largest bet on Chinese technology by SoftBank’s Vision Fund is now $4 billion in the red as Beijing punishes ride-hailing group Didi Chuxing for alleged data breaches on the back of its blockbuster listing in New York.
Vision Fund’s 20.1 percent stake in the taxi app, for which it paid $11.8 billion in 2019, is now worth $7.8 billion after Chinese regulatory pressure hit Didi’s business prospects, forcing the market value nearly halved.
The Japanese group’s heavy investments in the Chinese technology sector, which accounts for more than a quarter of the Vision Fund’s portfolio, have exposed the group to the changing regulatory winds in the country.
Days after the Didi investigation began, Chinese cyberspace regulators took a closer look at the Vision Fund-backed Full Truck Alliance, which has seen US-listed stocks plunge 43 percent since early July.
Vision Fund’s other investments in China are subject to regulatory pressure. Keep, the country’s most popular fitness app, recently withdrew its plans for an IPO in the US, while online education start-up Zuoyebang could be hit by debilitating restrictions on the home tutoring industry’s business model.
SoftBank began acquiring its stake in Didi in 2015 and increased the value of one tranche of shares by $900 million when it sold its stake to the Vision Fund in 2019.
The murders of two female passengers by Didi drivers in 2018 sparked a storm of public outcry and regulatory action against the company, weighed on the startup’s valuation and delayed its public listing for several years.
Didi’s app is a critical lead generator for spin-offs like bike sharing and community buying, which SoftBank has also supported with hundreds of millions of dollars. SoftBank has also invested in Didi’s autonomous driving unit.
The Vision Fund hoped at some point to sell its share of Didi in the US public offering, which bankers and investors had said could value the company at as much as $100 billion. But it shelved those plans when the start-up’s high valuation ran out, according to one person familiar with the matter. The fund declined to comment.
Even as the Vision Fund posted a $4 billion paper loss on Didi, the value of many of its technology investments outside of China has skyrocketed with public markets booming. Didi’s share price could also recover once the regulatory issues are resolved, though analysts and lawyers warned the investigation was unlikely to come to an end any time soon.
The $100 billion Vision Fund was intended to diversify SoftBank’s geographic footprint as founder Masayoshi Son recognized the need to reduce the group’s large exposure to China, especially as Alibaba’s stake accounted for 43 percent of its stake. total shareholding.
Shares in Alibaba are down 35 percent from their October high, following the $37 billion IPO of sister fintech company Ant in November, which would have been the largest ever, and a “rectification” government campaign.
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Li Chengdong of tech-focused think tank Haitun said valuations would plummet if Hong Kong became the main stock exchange location for Chinese tech companies.
“China is a big part of SoftBank’s global investment strategy, so all of this will impact their investment returns,” he said. “They may be the investor taking the biggest blow from this round of regulation.”
China’s Ministry of State Security and six other government departments announced last week that they would be stationing investigators at Didi’s offices to conduct a security investigation after the company pushed through its IPO in New York against the cyberspace regulator’s wishes. .
China’s Cyberspace Administration has also removed Didi’s main ride-hailing app and 25 connected services from domestic app stores and halted user logins.
Additional reporting by Nian Liu in Beijing