Soft-value

Alibaba IPO highlights SoftBank's value dilemma

Alibaba's runaway initial public offering has turned the spotlight back onto SoftBank's valuation dilemma. Following the Chinese e-commerce group's successful New York listing, the Japanese conglomerate's 32 per cent stake eclipses the value of its other businesses. The 5 per cent drop in SoftBank's shares on the morning of September 22 is a reminder the investment is both blessing and burden.

SoftBank's $20 million investment in Alibaba back in 2000 probably ranks as one of the greatest ever. Based on Alibaba's first-day closing share price of $93.89, the stake is valued at almost $75 billion. SoftBank could not sell at that price even if it wanted to. But even after applying a 20 per cent discount, the shareholding is now probably worth about $60 billion.

The company run by Masayoshi Son has stakes in other large listed entities too. The most significant are U.S. mobile carrier Sprint, internet portal Yahoo Japan and online games maker GungHo Online Entertainment. The market value of these shareholdings - all of which SoftBank controls - adds up to around $35 billion. Combined with Alibaba, SoftBank's four main publicly traded investments exceed the Japanese group's $92 billion market capitalisation.

That suggests investors ascribe little or no value to SoftBank's profitable Japanese telecom business, says Jefferies. The brokerage also points out that Alibaba is just one of the 1,300-plus investments that SoftBank has in an array of internet companies at various stages of growth. Some of these may also turn out to be gems. The worry is that investors will be reluctant to give SoftBank credit for these investments as long as it maintains such a sprawling portfolio. There are few obvious synergies between Alibaba and the group's other operations. SoftBank previously offered investors indirect exposure to the Chinese e-commerce group. Now they can now buy the shares directly. Son has made it clear that he intends to maintain SoftBank's stake in the Chinese group. Unlike Yahoo, the Japanese group did not sell any shares in the IPO. But unless SoftBank can find a way to simplify its structure, however, its true value may remain clouded.