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(Bloomberg) -- SoftBank Group Corp.’s Vision Fund investment arm may report a smaller quarterly loss or break even when it announces earnings Thursday, thanks to a global rally in tech stocks.
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That wouldn’t be enough to outweigh three straight quarters of hefty losses. The Vision Fund may still post an even bigger annual loss than the previous year’s record ¥2.6 trillion loss, with Astris Advisory’s Kirk Boodry forecasting a total loss of roughly ¥4 trillion ($30 billion) in the year ended March.
Valuations of Vision Fund investments are challenging to estimate due to the high proportion of unlisted companies in the portfolio, making SoftBank’s earnings reports the best barometer. Investors now question if the bleeding is over.
Risk appetite remains weak for unprofitable startups, crippling SoftBank’s ability to book investment gains. Founder Masayoshi Son is slated to skip Thursday’s earnings call, leaving Chief Financial Officer Yoshimitsu Goto in charge of talking up a planned initial public offering of chip design unit Arm Ltd. and assuaging any fears about its finances.
Here are the key points to watch:
Is the worst over for tech startups?
Over the last year, SoftBank has marked down investments on high-profile and unlisted startups ranging from India’s Oyo Hotels to Sweden’s Klarna Bank AB. But some investors continue to ask if they’ve gone far enough.
SoftBank discloses writedowns or gains on its investments in listed companies, which include Didi Global Inc. and Grab Holdings Inc. But visibility is limited on SoftBank’s privately-held holdings, which number in the hundreds. Many of the startups it’s invested in remain in the red.
Focus will be on any sign of improvement in the Vision Funds’ performance, such as their internal rates of return as of end-March. The first Vision Fund was just above water in terms of its cumulative returns minus its investments since inception, while the second Vision Fund was in the red, down around $17 billion as of end-December.
How strong is SoftBank’s balance sheet?
SoftBank’s preferred metric on its financial health is its loan-to-value ratio. The figure shows the debt load of the company compared with the current value of all of its holdings.
The heavily indebted company is vulnerable to any interest rate hikes, and the company has pledged to keep its LTV below 25% and to hold enough cash to cover at least two years’ worth of bond redemptions. The figure stood at 18.2% in the December quarter.