The single largest bet on Chinese tech by SoftBank’s Vision Fund is in the red as Beijing punishes ride-hailing group Didi Chuxing for alleged data security lapses on the back of its blockbuster New York listing.
The Vision Fund’s 20.1 per cent stake in the taxi app, for which it paid $11.8bn in 2019, is now worth $7.8bn after Chinese regulatory pressure hit Didi’s business prospects, cutting its market value almost in half.
The Japanese group’s heavy investment in China’s tech sector, which makes up more than one-quarter of the Vision Fund’s portfolio, has left it exposed to shifting regulatory winds in the country.
Days after initiating the Didi probe, China’s cyber space regulators turned to scrutinising Vision Fund-backed Full Truck Alliance, causing its US-listed shares to fall 43 per cent since the start of July.
Other Vision Fund investments in China are facing regulatory pressure. Keep, the country’s most popular fitness app, recently withdrew plans for a US initial public offering, while online education start-up Zuoyebang could be hit by debilitating restrictions on the business model of the home tutoring sector.
SoftBank started amassing its stake in Didi in 2015 and marked up the value of one share tranche by $900m when it sold the stake to the Vision Fund in 2019.
The murders of two female passengers by Didi drivers in 2018 set off a storm of public outrage and regulatory action against the company, and weighed on the start-up’s valuation and delaying its public listing for several years.
Didi’s app is a crucial lead generator for spin-offs such as its bike-sharing and community group buying businesses, which SoftBank has also backed with hundreds of millions of dollars. SoftBank has also invested in Didi’s autonomous driving unit.
The Vision Fund at one point hoped to sell down its Didi stake in the US public offering, which bankers and investors had said could value the company at as much as $100bn. But it shelved those plans as the start-up’s lofty valuation deflated, according to one person familiar with the matter. The fund declined to comment.
Even as the Vision Fund recorded a $4bn paper loss on Didi, the value of many of its tech investments outside China has soared with booming public markets. Didi’s share price could also recover when its regulatory issues are settled, though analysts and lawyers warned that the investigation was unlikely to come to a rapid conclusion.
The $100bn Vision Fund had been intended to diversify SoftBank’s geographical footprint as founder Masayoshi Son acknowledged the need to reduce the group’s heavy exposure to China, especially with its Alibaba stake accounting for 43 per cent of its total equity holdings.
Shares in Alibaba are down 35 per cent from their October high following the suspension of sister fintech company Ant’s $37bn IPO in November, which would have been the largest ever, and a government “rectification” campaign.
Li Chengdong of tech-focused think-tank Haitun said that valuations would come down as Hong Kong became the primary listing venue for Chinese tech companies.
“China is a huge part of SoftBank’s global investment strategy, so all of this is going to impact their investment returns,” he said. “They might be the investor who takes the biggest hit from this round of regulation.”
China’s Ministry of State Security and six other government departments last week announced they would station investigators in Didi’s offices to conduct a security probe after the company went ahead with its New York IPO against the cyber space regulator’s wishes.
The Cyberspace Administration of China has also removed Didi’s main ride-hailing app and 25 connected services from domestic app stores and halted user sign-ups.
Additional reporting by Nian Liu in Beijing