Date
4 December 2016
The ARM acquisition has pushed SoftBank’s overall debt load to US$100 billion and its credit rating has been lowered to junk grade. Photo: Reuters
The ARM acquisition has pushed SoftBank’s overall debt load to US$100 billion and its credit rating has been lowered to junk grade. Photo: Reuters

Why SoftBank and Saudi Arabia are a good fit for each other

Japanese internet and telecommunications giant SoftBank Group Corp. is teaming up with a Saudi sovereign wealth fund to create a US$70 billion technology investment fund.

The deal highlights the ambition of Softbank chief executive Masayoshi Son to expand his business empire and Saudi Arabia’s push to diversify its economy beyond oil.

Softbank said it will invest at least US$25 billion over the next five years into the SoftBank Vision Fund, and Saudi Arabia’s Public Investment Fund may contribute an additional US$45 billion.

As Softbank is in talks with “a few large global investors”, the fund could eventually expand to US$100 billion, a sum equivalent to the total amount of venture capital funds over the past three years.

Son has been very active in making deals in recent years.

He acquired British chip designer ARM Holdings for 24.3 billion pounds (US$29.7 billion) in July, making it the largest deal in the European technology sector.

He has also shown great interest in robots, artificial intelligence, new energy and other new technology sectors.

However, the ARM acquisition has already pushed SoftBank’s overall debt to US$100 billion and net debt to US$70 billion, while its credit rating has been lowered to junk grade.

The SoftBank Vision Fund is expected to solve the company’s funding problems and enable Son to achieve his grand plans.

In the meantime, Saudi Arabia’s Deputy Crown Prince, 31-year-old Mohammed bin Salman, who is expected to take over the helm from his father King Salman, is keen to reduce the kingdom’s reliance on oil.

The prince is now in charge of sovereign wealth fund Public Investment Fund (PIF) with over US$2 trillion in assets under management, apart from holding a number of other key positions.

In April Prince Mohammed unveiled his grand plan for the kingdom, called Vision 2030, in which he calls for increasing the contribution of non-oil sectors to the gross domestic product to 50 percent within 15 years from 16 percent at present.

Technology is one of the main areas the prince favors. PIF has already invested in numerous internet companies, including US$3.5 billion in Uber this June.

Solar energy and robotic technologies, two of the sectors Son has strong confidence in, are precisely what Saudi Arabia needs to restructure its economy, as the country has vast solar resources but suffers from severe labor shortage.

Perhaps that is why the two hit off soon after they first met in September during the prince’s visit to Japan.

This article appeared in the Hong Kong Economic Journal on Oct. 26.

Translation by Julie Zhu

[Chinese version 中文版]

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RT/CG

Hong Kong Economic Journal columnist

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