By Makiko Yamazaki
TOKYO (Reuters) - SoftBank Group Corp (T:9984) plans to make future large-scale investments via an upcoming $100 billion tech fund it is establishing rather than on its own to avoid growing already bloated debt at the Japanese telecoms and technology company.
Founder and CEO Masayoshi Son is steering SoftBank, a diverse company that holds stakes in U.S. carrier Sprint (N:S), Chinese e-commerce giant Alibaba (N:BABA) and other firms, towards cutting-edge tech investments as the telecoms services markets mature, saying he aims to make the firm the "Berkshire Hathaway of the tech industry".
As part of that gameplan, SoftBank bought UK chip designer ARM Holdings (LON:ARM), Britain's most valuable technology company, for $32 billion this year, and announced with Saudi Arabia the planned creation of an investment fund that could grow up to $100 billion.
Some of SoftBank's moves have caused concern among analysts, as it is wrestling with a 13.7 trillion yen ($131 billion) debt pile.
Son said at an earnings briefing on Monday that future investments exceeding "several tens of billions of yen" will be made through the tech fund to avoid a further expansion of SoftBank's debt.
"Our investments were previously confined to our balance sheet," Son said. "By creating the new fund, we would be better positioned to leverage the coming opportunities."
SoftBank's leverage multiple is expected to drop to 3.5 from the current 4.0 within "several years", backed by the company's domestic telecommunications business which is expected to generate annual cash flow of about 600 billion yen, he said.
The ARM acquisition is the beginning of the company's transformation, Son said, adding he is "aiming to become a Warren Buffett in the tech industry". Billionaire Buffett runs conglomerate Berkshire (N:BRKa).
SoftBank expects to invest over the next five years at least $25 billion in the tech fund, which would be one of the world's largest private equity investors and a potential kingpin in the technology industry.
On Monday, SoftBank reported a 6.8 percent rise in second-quarter operating profit to 335 billion yen, thanks to a strong showing by the cash-cow domestic telecommunications business. That compared with a 287 billion yen average estimate from two analysts, according to Thomson Reuters Starmine.
Sprint, owned 83 percent by SoftBank and a long-time drag on SoftBank's earnings, is also showing signs of improvement. It reported a return to operating profit in the latest quarter, strong net additions in postpaid phone subscribers and a record-low cancellation rate. Sprint also raised the full-year outlook for operating profit.
"Sprint was a drag on the group's earnings, but I'm confident that it will be the biggest contributor to our profit growth," Son said.