Issuance should be roughly equal to holdings for retail investors in Japan as the market for those only exist because JGBs pay nothing.
I think if both of those went under it looks extremely bad but SoftBank Group gets a dividend from the SoftBank Corp (telecom) that has enough dependable operating income that should be good for servicing debt. Additionally, SoftBank Group is still trading at a discount to its BABA stake + everything else.
There definitely is an increasing chance of a perfect storm where multiple bad things happen that could quickly evaporate this whole thing:
- China gets worse domestically with or without trade war ratcheting up and BABA is collateral damage
- S/TMUS merger fails from domestic regulatory pressure (just had TX and NV AGs settle but other states are not on board still)
- UBER, WEWORK, and others (Oyo?) get dragged and there are some feedback loops on other portfolio companies
- Funding pressures. There was an article on FT about domestic banks being skeptical on lending more to SOFTBK. Stuff like that becomes a self-fulfilling prophecy after a while and can quickly spiral out of control. That said, SOFTBK has something like 20bn cash on hand so that should only really become a problem if there's prolonged weakness.
- Vision Fund 2 more than likely not going to be able to raise its envisioned amount. Obviously no one wants to touch this right now. I think there's definitely been internal discussions on how some of this $ would be used to bail out VF1 portfolio companies through acquisitions. Additionally, if I had to make a forecast, there's not enough companies out there right now that could absorb $100bn of VC money and be able to profitably exit.
I think the biggest problem going on right now is that all of these companies were built upon endlessly flowing capital and business models were based on that. Now that everyone is focused on "profitability", I'm not sure if you can easily pivot some of these business models without completely imploding businesses. None of these companies have created anything that consumers cannot live without. VC-subsidized luxuries brought to the masses can have a very fleeting existence; people got around before UBER. If any of these companies ever try to raise prices in an attempt to display profitability, they could be in a rude awakening for ECON101 price elasticity/inelasticity lesson.
I think if both of those went under it looks extremely bad but SoftBank Group gets a dividend from the SoftBank Corp (telecom) that has enough dependable operating income that should be good for servicing debt. Additionally, SoftBank Group is still trading at a discount to its BABA stake + everything else.
There definitely is an increasing chance of a perfect storm where multiple bad things happen that could quickly evaporate this whole thing:
- China gets worse domestically with or without trade war ratcheting up and BABA is collateral damage
- S/TMUS merger fails from domestic regulatory pressure (just had TX and NV AGs settle but other states are not on board still)
- UBER, WEWORK, and others (Oyo?) get dragged and there are some feedback loops on other portfolio companies
- Funding pressures. There was an article on FT about domestic banks being skeptical on lending more to SOFTBK. Stuff like that becomes a self-fulfilling prophecy after a while and can quickly spiral out of control. That said, SOFTBK has something like 20bn cash on hand so that should only really become a problem if there's prolonged weakness.
- Vision Fund 2 more than likely not going to be able to raise its envisioned amount. Obviously no one wants to touch this right now. I think there's definitely been internal discussions on how some of this $ would be used to bail out VF1 portfolio companies through acquisitions. Additionally, if I had to make a forecast, there's not enough companies out there right now that could absorb $100bn of VC money and be able to profitably exit.
I think the biggest problem going on right now is that all of these companies were built upon endlessly flowing capital and business models were based on that. Now that everyone is focused on "profitability", I'm not sure if you can easily pivot some of these business models without completely imploding businesses. None of these companies have created anything that consumers cannot live without. VC-subsidized luxuries brought to the masses can have a very fleeting existence; people got around before UBER. If any of these companies ever try to raise prices in an attempt to display profitability, they could be in a rude awakening for ECON101 price elasticity/inelasticity lesson.