CLSA assesses impact of rates on SoftBank’s investment strategy

According to CLSA’s Oliver Matthew, the current interest rate environment could favor the long-term investment strategy of Japanese conglomerate SoftBank Group, which seeks to buy early-stage technology companies at lower valuations.

With prices for potential acquisitions now falling as investors brace for higher rates, Matthew told CNBC’s “Squawk Box Asia” on Wednesday that SoftBank may end up “getting a better deal.”

Still, he acknowledged that falling valuations of listed growth companies this year have also been a clear headwind for shares of the Japanese conglomerate. The valuations of growth companies in sectors such as technology tend to suffer in a higher interest rate environment, as this makes their future earnings less attractive.

SoftBank’s Vision Fund is a venture capital powerhouse, investing in everything from Uber to Chinese tech titan Alibaba. Caught in the crossfire of Beijing’s ongoing regulatory crackdown on its domestic tech sector, SoftBank has had to cut its stakes in companies like Uber to cover those losses.

Arm IPO: A Catalyst for SoftBank Stocks?

Arm’s planned IPO is also a catalyst for SoftBank Group shares, said Matthew, head of Asia consumer at CLSA.

Shares of Japan’s SoftBank Group soared nearly 6% on Wednesday after the company announced it would seek a potential listing for its Arm unit. Some of those gains were later pared back, with the stock dropping about 3% in Thursday morning trading.

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The Japanese conglomerate originally planned to sell Arm to Nvidia, but the sale fell apart amid regulatory scrutiny.

The deal was announced in 2020 and valued at $40 billion in Nvidia stock and cash. With the sale off the table, Arm is poised to prepare for its public debut in the fiscal year ending March 31, 2023.

“When they made the deal with Nvidia, it was a little complicated because they were taking two-thirds of the Nvidia stock price – which we know SoftBank was very, very bullish on,” Matthew said. As a result, the Japanese conglomerate is likely to seek a higher valuation and let Arm go public “at a pretty decent price.”

SoftBank bought Arm in 2016 for $32 billion.

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