Yeah, that would be the case for almost any big company whose finances are in order, but afaik SoftBank is not that open when it comes to how it really does stuff, so there’s a lot of guessing going on, and generally speaking guessing is not that good for investors when a recession hits, you want to know the real numbers and especially the real money flow, so to speak.
To go back to the available numbers: what would happen in case SoftBank needs to re-finance half of its loans in the next 5 years? What would happen if that need for re-financing is coupled with a recession that will most probably drive many of SoftBank’s assets’ value down? Will the Japanese banks be willing to roll that debt over in the midst of great need for liquidity? Debt which will stand against a lower value of SoftBank’s assets? We don’t really know.
In any case, what SoftBank is doing looks to me like “conglomerate financial engineering”, i.e. doing a lot of financial fuzzy stuff while apparently being backed up by solid assets, assets which are managed in a very Byzantine way. That works very well until it doesn’t, the latest such example being General Electric, which went from being among the 3 biggest companies in the world to one step from financial insolvency, all this in a matter of couple of weeks/one month, all this because of GE Capital.
I guess the next recession will show who was really right and who wasn’t.
Japanese banks have a habit of extending additional financing in order to avoid having to write down their assets even when borrowers are effectively insolvent. Extend and pretend, kick the can down the road.
Because funding costs for hedging cross currency trades have gone up ever since the Fed has started raising rates and largely reduced returns or in some cases even caused negative returns. Funding costs have exceeded rate hikes 1:1 and this has caused the foreign buyer base to drop sharply for UST.
To go back to the available numbers: what would happen in case SoftBank needs to re-finance half of its loans in the next 5 years? What would happen if that need for re-financing is coupled with a recession that will most probably drive many of SoftBank’s assets’ value down? Will the Japanese banks be willing to roll that debt over in the midst of great need for liquidity? Debt which will stand against a lower value of SoftBank’s assets? We don’t really know.
In any case, what SoftBank is doing looks to me like “conglomerate financial engineering”, i.e. doing a lot of financial fuzzy stuff while apparently being backed up by solid assets, assets which are managed in a very Byzantine way. That works very well until it doesn’t, the latest such example being General Electric, which went from being among the 3 biggest companies in the world to one step from financial insolvency, all this in a matter of couple of weeks/one month, all this because of GE Capital.
I guess the next recession will show who was really right and who wasn’t.