SoftBank (SFTBY) CEO Masayoshi Son has vowed to trim debt at the Japanese wireless carrier he founded after it swelled past $135 billion last quarter following the purchase of U.K. chip designer ARM Holdings.
Son said his new $100 billion tech fund, SoftBank Vision, which he announced in October in partnership with the Public Investment Fund of Saudi Arabia and compared to Warren Buffet's Berkshire Hathaway, would drive the company's major investments going forward and keep debt from piling onto SoftBank's balance sheet. In fact, Son said he would mimic the Buffet/Berkshire model throughout the whole of the company.
"Do we have too much debt?," Son asked rhetorically during a Monday press conference in Tokyo. "To proceed with [SoftBank 2.0 - the company's global expansion drive], we cannot increase our debt any further ... We need to build up our defences before making any more offenses."
Son added he was now in discussions with several wealth sovereign funds who had expressed interest in the new venture.
SoftBank said Monday its debt rose to ¥14.3 trillion ($137 billion) in the three months ended September 30 from ¥12.37 billion in the previous quarter. Net income at the Tokyo-based group, however, soared 140% year on year to ¥512.1 billion even as revenue declined 3.1% to ¥2.15 trillion.
SoftBank attributed the debt increase partly to its purchase of ARM, which involved ¥1 trillion in bridge financing. The £24 billion ($30 billion) takeover of the chip designer, whose know-how is adopted in around 95% of smartphones worldwide, was initially announced in July and completed on September 5.
Debt also mounted due to borrowings related to mobile devices and network equipment for Overland Park, Kansas-based telecom carrier Sprint (S) , in which SoftBank has been invested since 2012. That said, interest-bearing debt coming from Sprint dropped to ¥3.79 trillion from ¥3.9 trillion in the second quarter, with the ratio against overall debt down to 27% from nearly a third at the end of the first quarter. Sprint, which has continued to book net losses, expects operating profit of between $1.2 billion and $1.7 billion in 2016.
Son's newly-articulated strategy, which included several uses of the word "defence" represents a slight adjustment to his previous stance on leverage, with the SoftBank founder adding that the first step in that direction would be to lower the company's net debt/Ebitda ratio to below 3.5 times - and even lower beyond that.
SoftBank said the ratio stands at 4.0 times, down from the 6.8 level recorded just after the company acquired the Japanese unit of Vodafone in 2006, but up from 3.8 times in March of this year.
Moody's, which affirmed its Ba1 rating on SoftBank on September 16, said it could consider a downgrade if the company's debt/Ebitda ratio exceeds 5.5 times "on a sustained basis".
Despite his somewhat muted stance on debt, Son did not back down from expressing his limitless ambitions. He said that his future investments would not be confined to narrowly defined technology areas, but anything that involved industrial "re-inventions" stemming from the development of technological "singularity," or artificial intelligence.
As an example of this, Son expressed regret in not taking the opportunity to invest in ride-sharing company Uber Technologies when he was approached by CEO Travis Kalanick in the past.
"The day when artificial intelligence will surpass human intelligence is now right before our eyes," Son said, adding that this had already been proved in areas such as chess and the weather forecast. "Every industry will be redefined because of this."