SoftBank shares jump 10% on $9 billion buyback announcement

Tokyo: SoftBank Group Corp shares jumped 10% on Tuesday, the first trading session after the Japanese conglomerate said it would spend up to 1 trillion yen ($8.8 billion) buying back almost 15% of its shares.

The company announced the buyback, long speculated by the market, after it revealed its quarterly earnings crashed to a loss amid a decline in the share prices of its portfolio companies and a regulatory crackdown in China.

The move puts SoftBank`s shares on track for the biggest daily jump in 11 months.

The buyback is SoftBank`s second largest after a record 2.5 trillion yen buyback launched during the depths of the COVID-19 pandemic last year. Shares of the tech group quadrupled during that buyback, but have since fallen 40% from a peak in May.

"Our analysis of buyback history indicates that SBG stock performs (and outperforms indices or BABA) during buybacks," wrote Jefferies analysts Atul Goyal in a note, referring to Alibaba, the group`s largest asset. SoftBank owns about a quarter of Alibaba`s shares.

The slide in the Chinese e-commerce giant`s shares and the broader regulatory backlash in China contributed to a $57 billion fall in SoftBank`s net assets to $187 billion, a metric that Chief Executive Masayoshi Son has said is the primary measure of SoftBank`s success.

(For graphic on Buyback dependence - https://graphics.reuters.com/SOFTBANKGROUP-SHARES/byprjkkkdpe/chart.png)

The repurchase period for the latest buyback runs to Nov. 8 next year, with the group signalling the programme could take longer than the fast-paced purchases last year.

The buyback "is nice support, but it isn`t rocket fuel," wrote LightStream Research analyst Mio Kato on the Smartkarma platform, adding "there are material downside risks if broader tech, especially unprofitable tech, falters."

Speculation SoftBank could launch a buyback has been raging for months as the discount - the gap between the value of its assets and its share price - has lingered to the frustration of executives and as investors push for repurchases.

Ongoing uncertainties include the prospect of gaining regulatory approval for the $40 billion sale of chip designer Arm to Nvidia.

Delays to the sale "may have given Softbank the flexibility to announce a buyback now with expectations of ramping up share purchases later," Redex Research analyst Kirk Boodry wrote in a note.

SoftBank is ramping up investing via Vision Fund 2, which has $40 billion in committed capital from the group and Son himself, even as it winds down activity at trading arm SB Northstar.

"Even if the company manages its finances with a certain amount of discipline, share buybacks would likely erode the financial buffer if executed," S&P Global Ratings analysts wrote in a note.

The conglomerate held more than 5 trillion yen in cash and cash equivalents at the end of September, an increase of 9% compared to six months earlier.