US hedge fund Tiger Global has built a stake worth over $1 billion in SoftBank Group Corp as it considers the Japanese firm undervalued, a source with direct knowledge of the matter said, driving SoftBank shares up as much as 6.8 percent.
The bump added nearly $6 billion to SoftBank's market capitalization, narrowing the gap between the company's limited valuation as a conglomerate and the valuation that the company says it deserves, thanks to its rich investments.
The Japanese tech and telecoms firm, which holds a nearly 30 percent stake in Chinese e-commerce giant Alibaba, has recently started taking action to address the issue, including preparing a listing of its domestic telecoms unit.
New York-based Tiger Global, which manages around $22 billion in assets, told investors in a letter that SoftBank's stock price had not increased over the last five years even though its holding in Alibaba had added more than $90 billion in value.
SoftBank shares surged as much as 6.8 percent, pushing up the company's market value to about $91 billion. They closed up 6.4 percent at 9,376 yen, their tenth consecutive day of gains.
The company's charismatic CEO Masayoshi Son, who owns 21 percent of SoftBank, said at a shareholders' meeting last month, that a "conglomerate discount" was weighing on the company's stock. He said the stock should be trading above 14,000 yen rather than where they were then - at around 8,000 yen - to account for its investments. Besides Alibaba, SoftBank has a stake in US telecoms firm Sprint Corp and Yahoo Japan. But SoftBank's investments have left it with a heavy debt load.
It had about $123 billion of debt as of March end and has a debt-to-equity ratio of 3.97, compared with an industry median of 0.10. In contrast, Alibaba, whose shares have more than doubled since their debut in 2014, has a market capitalization of $480 billion and a debt-to-equity ratio of 0.31. Sentiment towards the stock has risen recently after the company applied for the listing of its telecom unit and said it was increasing its stake in Yahoo Japan through an indirect deal that will deepen its ties with the internet heavyweight ahead of the IPO. SoftBank hopes the listing will clarify the distinction between its domestic telecoms operations and investing activities and help chip away at its discounted valuation.