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Abu Dhabi, UAEFriday 20 July 2018

Tiger Global Management builds $1bn stake in Japan's SoftBank 

The Tiger hedge fund and the Global Long Opportunities fund built the stake over the past few months

People walk behind the logo of SoftBank in Tokyo. Tiger Global Management hedge fund has invested more than $1bn in SoftBank Group. Reuters
People walk behind the logo of SoftBank in Tokyo. Tiger Global Management hedge fund has invested more than $1bn in SoftBank Group. Reuters

Chase Coleman’s Tiger Global Management has invested more than $1 billion in SoftBank Group, according to a client letter seen by Bloomberg.

SoftBank’s shares rose 5.5 per cent, the most in three months on an intraday basis, on Thursday after Tiger Global told investors that the Japanese conglomerate is trading at too steep a discount to its net asset value. Its share price fails to reflect the appreciation of assets, including Alibaba Group Holding, the asset manager said.

The Tiger Global Investments hedge fund and the Global Long Opportunities fund built the stake over the past few months. The Financial Times reported the investment earlier Wednesday. A representative for Tiger Global, which oversees about $22bn, declined to comment.

One of the world’s biggest technology investors, SoftBank has used cash from its domestic operations to buy stakes in companies such as Sprint Corporation, Yahoo Japan, and Alibaba. The company’s Vision Fund, a technology-focused private equity effort that counts Saudi Arabia and Apple among its backers, has a goal of raising $100bn.

Tiger Global puts SoftBank’s total asset value at $278bn, and its net asset value at $190bn -- more than double the current market capitalisation, the letter shows. The money manager said it expects SoftBank to unlock value through the planned initial public offering of SoftBank Mobile over the next three months, and a potential tax-deferred spinoff of the Alibaba stake, among other moves.

"The combination of a world-class set of assets trading at a record discount to NAV strikes us as an odd anomaly that is unlikely to exist forever,” the firm said in the letter. “The stock is meaningfully undervalued.”

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Tiger Global also said it values SoftBank’s position in the Vision Fund conservatively, at cost of $24bn. If the Vision Fund posts returns of 250 per cent over the next seven years, shareholders would see another $73bn in added value, the letter said.

Tiger Global’s analysis accounts for net debt of $88bn for SoftBank. The hedge fund excludes non-recourse debt -- like that of Sprint -- from that estimate, because the Japanese company does not owe anything to the creditors of its US unit.

“We continue to believe the market significantly undervalues our stock and we welcome the support from a sophisticated institutional investor like Tiger Global,” said Takeaki Nukii, a SoftBank spokesman.

SoftBank’s shares were trading at about the same level as a year ago yesterday, while the Nikkei 225 Stock average rallied almost 10 per cent. Alibaba shares have surged about 30 per cent in the same period, bringing the value of SoftBank’s stake in the e-commerce company to about $140bn -- far more than its own market value of about $87bn.

“In our view, the opportunity to buy the shares cheaply exists today because SoftBank’s stock has not appreciated in nearly five years, even though the value of its Alibaba stake has increased by over $90bn,” the letter said.

The company’s discount to its asset value frustrates its executives, who track the changes on a weekly basis and have been planning to step up efforts to close the gap, Bloomberg reported in February. They plan to make more transparent how the Vision Fund will benefit SoftBank and how its startup investments are valued. Investors have also been desperate for more clarity.

Because of their overlapping focus on technology, SoftBank and Tiger have a history of investing alongside each other in companies including car-hailing services Uber Technologies, Ola, and Hangzhou Kuaidi Technology. Last year, SoftBank purchased a portion of Tiger’s stake in Indian e-commerce leader Flipkart Group.

Coleman founded New York-based Tiger Global in 2001. He is a so-called “tiger cub,” a term coined for alumni of Julian Robertson’s hedge fund Tiger Management, where Coleman was a technology analyst. The firm has a hedge fund business and an $11bn venture capital unit.