SoftBank shares dive on news of founder's big bets on tech stocks

TOKYO • SoftBank Group shares tumbled in Tokyo yesterday after reports surfaced that the Japanese conglomerate made substantial bets on equity derivatives amid a surge in technology stocks.

The shares dropped as much as 8 per cent, the most on an intra-day basis since March.

The stock had gained 33 per cent this year before yesterday.

The Financial Times (FT), Wall Street Journal (WSJ) and Zero Hedge reported that SoftBank was making massive bets on technology stocks using equity options.

The FT labelled SoftBank a "Nasdaq whale" that "stoked the fevered rally in big tech stocks" though it did not include details of any trading.

The reports touched off concerns that billionaire founder Masayoshi Son is embarking on a risky endeavour in unfamiliar territory, which could lead to losses like those SoftBank suffered after its enormous bet on office-sharing start-up WeWork.

The stock decline came despite an FT report that SoftBank had gained about US$4 billion (S$5.46 billion) from the derivative bets.

"SoftBank was riding the Nasdaq wave like a mutual fund," said Ichiyoshi Asset Management senior executive officer Mitsushige Akino.

"The market is falling now and investors have zero visibility, so they are selling SoftBank stocks."

The Japanese company said last month that it was starting a new unit to trade public securities, pushing beyond its traditional base in telecommunications and private start-up investments.

Bloomberg reported last month that SoftBank was targeting investments of more than US$10 billion, perhaps tens of billions, and would use financing structures that would allow the company to avoid showing up in public disclosures of shareholding.

The Japanese company's derivatives strategy had been built over the past few months, the FT cited people as saying, adding that SoftBank spent about US$4 billion on options premiums focused on tech stocks over that time.

SoftBank now has large but unrealised profits, and the trades have been deeply controversial even within the company, the newspaper reported.

The WSJ reported that SoftBank spent about US$4 billion buying call options on stocks, while it also sold call options at higher prices.

Mr Son has experimented with dozens of businesses since founding SoftBank in 1981.

He began his career in software distribution, trade shows and magazines, before expanding into telecommunications and start-up investments.

He frequently made moves that baffled and frustrated his investors. He acquired wireless carrier Sprint in the United States, but struggled to turn it around and sold the business this year.

He acquired chip designer Arm for US$32 billion four years ago in a move that spooked investors. SoftBank had been in talks to sell Arm this year, Bloomberg reported.

In another move, he set up a US$100 billion Vision Fund to take stakes in scores of tech start-ups. The fund reported US$17.7 billion in losses for the fiscal year ended in March, after writing down the value of holdings, including WeWork and Uber Technologies.

The market surge this year has helped lift start-up valuations and demand for initial public offerings has soared.

"In a world where volumes are distorted by the frantic trading of algos, any real order flows may have a surprisingly large impact on prices," Mr Peter Tchir, head of macro strategy at Academy Securities, wrote in a note.

"By trading options, they leverage their position."

BLOOMBERG