SoftBank Group Corp. is prepared to spend a record ¥500 billion buying back stock after the carrier saw its shares drop to their lowest since buying Sprint Corp. in 2013.
SoftBank will purchase as many as 167 million shares, or 14.2 percent of its stock, using cash holdings and the proceeds of asset sales, according to the Tokyo-based company. The company, saddled with about $100 billion of total debt, said it will not resort to more loans to fund the program.
Chairman Masayoshi Son has been dogged by doubts about his ability to turn around Sprint as investor concerns drove a 28 percent plunge in SoftBank stock so far this year. That steep decline has pushed the Japanese company’s market value below that of its own investments in companies including Alibaba Group Holding Ltd.
“This is a good buyback, considering how low their valuation has fallen,” said Atul Goyal, an analyst at Jefferies Group LLC. “Nothing so bad happened with Sprint and Alibaba to justify the drop in SoftBank shares.”
SoftBank shares rose about 12 percent in European trading after announcing the program. Before the announcement, the stock climbed 5.7 percent in Tokyo, lagging the Topix index’s 8 percent gain.
The massive buyback program, which will take place over the next 12 months, will not significantly affect SoftBank’s debt position or ratings, Japan Credit Rating Agency Ltd. said in a statement Monday.
SoftBank had about ¥2.8 trillion of cash and equivalents as of Dec. 31 although its total debt amounted to ¥12.3 trillion, data show. The group has received about ¥300 billion from dividends and the sale of investment securities in the past year, it added. The company is now considering further asset sales to help pay for the buyback, said Hiroe Kotera, a spokeswoman for SoftBank.
“Considering the current share price level, we deemed this a good timing to pay back shareholders,” Kotera said. She did not specify what assets SoftBank may sell.
Central to the stock’s under-performance has been Sprint, SoftBank’s biggest overseas investment after its stake in China’s Alibaba. Sprint’s shares have fallen 27 percent this year, while those of Alibaba have fallen 25 percent.
Sprint, which had been hemorrhaging cash over the past year, increased its cash and equivalents by almost 12 percent to $2.2 billion in the December quarter. The U.S. company also increased its profit forecast, calling for earnings before interest, tax, depreciation and amortization of as much as $8 billion in fiscal 2016.
“This is a big surprise for the market,” said Satoru Kikuchi, an analyst at SMBC Nikko Securities Inc. in Tokyo. “It will take about a year for the markets to believe in Sprint’s turnaround scenario.”
SoftBank’s buyback can be compared with the buyback strategy of Berkshire Hathaway Inc., said Jefferies’ Goyal.
The company headed by Warren Buffett, for whom Son has publicly expressed admiration, has said intrinsic value, a metric that accounts for the amount of cash that can be taken out of a business in its lifetime, is the best tool for evaluating the company.
“They don’t need shares to acquire companies, but the sum of parts is much greater than the current price, which is absurd,” Goyal said.