Leon Black’s Apollo Global Management hedge funds have placed a sizeable short bet against bonds issued by SoftBank, citing concerns about the Japanese conglomerate’s debt load and its exposure to cash burning tech start-ups.
Apollo discussed the trade with investors during a presentation in December, which also pointed to SoftBank chief executive Masayoshi Son’s investment process and pay package, said two people who attended the talk.
The firm entered the position that month, believing the bonds were mispriced and should not be trading at investment grade levels, one person briefed on the matter said.
SoftBank and Apollo declined to comment. The exact size of the position could not be learned.
Apollo, which manages about $3bn in the hedge funds and more than $330bn in total, is known as one of the savviest investors in credit and so-called distressed companies.
Its wager adds to the pressure on SoftBank as the Japanese group faces calls to improve its share price and provide transparency concerning the $100bn Vision Fund, which has suffered from a string of soured investments.
Paul Singer’s Elliott Management has called for SoftBank to enact share buybacks and governance reforms, in a bid to reduce the discount between its stock price and the value of its holdings in companies such as Alibaba.
SoftBank announced it would buy back close to $5bn worth of shares to help shore up the technology group’s stock price, which has declined more than 40 per cent since the start of the year.
The rating agency S&P Global last week raised concerns about the buybacks, cutting SoftBank’s outlook to negative and questioning its commitment to “financial soundness”.
Investors have homed in on SoftBank’s Vision Fund and its bets on cash-burning start-ups such as the food delivery company DoorDash and Indian hospitality group Oyo Hotels.
The fund unit weighed on SoftBank’s fourth-quarter earnings, posting $2bn in unrealised losses as one of its largest investments, the property group WeWork, was forced into a bailout after failing to go public. Last week SoftBank told WeWork investors it could back out of $3bn in planned share purchases, citing regulatory investigations into the company.
Elliott has called for greater transparency in the Vision Fund’s investments and questioned SoftBank’s plans to commit as much as $38bn toward a second version, one person familiar with the hedge fund’s thinking said.
Apollo is targeting SoftBank’s more than $170bn total debt load, which has raised concerns in some corners of the credit markets.
The cost of insuring against the risk of SoftBank not being able to pay its debt back has soared. Spreads on five-year credit-default swaps passed 500 basis points last week, with these derivatives tied to the Japanese conglomerate’s bonds having been quoted at slightly more than 200bp earlier in March.
The company has said it has enough funds to repay its debt for at least two years, and the pending closure of SoftBank-controlled Sprint’s merger with T-Mobile would further reduce its liabilities.
Additional reporting by Robert Smith in London
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