SoftBank’s Reported $25 Billion Saudi Deal May Signal Departure From Old Strategy

On Wednesday morning, Bloomberg first reported that SoftBank has plans to invest up to $25 billion in Saudi Arabia.

According to Bloomberg‘s unnamed sources, the Japanese telecoms conglomerate will be investing as much as $15 billion in NEOM, a new city that Saudi Crown Prince Mohammed bin Salman hopes to build on the coast of the Red Sea. The development of NEOM is expected to cost $500 billion. The 10,230 square-mile economic zone will be floated on public markets, according to Reuters reporting from late October, as early as 2018.

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“Without a doubt, at the end of the day, NEOM will be floated in the markets. The first zone floated in the public markets. It’s as if you float the city of New York,” said Prince Mohammed bin Salman at the time.

Additionally, sources told Bloomberg that the firm will be deploying an additional $10 billion into Saudi Electricity Co. out of SoftBank’s “Vision Fund,” a near-$100 billion pool of capital Crunchbase News initially profiled back in August 2017.

Sources told Bloomberg that the money earmarked for Saudi Electric will be invested in renewables and solar in an effort to diversify its energy capabilities away from oil alone. SoftBank itself has a separate energy and power-delivery arm, which generates and distributes electricity from various renewable sources both in Japan and abroad. As part of its overseas energy investments, SoftBank formed SBG Cleantech, a joint partnership with Foxconn Technologies and India-based Bharti Enterprises, which has pledged a $20 billion investment ($10 billion of which came only from SoftBank) in solar power in India.

But as for Saudi Electric Co., it’s unclear whether the Vision Fund will leverage any of its corporate parent’s resources or industry connections in the development deal. Crunchbase News has not received comments from either the Vision Fund or the energy company at this time.

Although it seems like the investment in Neom won’t be coming out of the Vision Fund, the still-in-the-works deal with state-owned Saudi Electricity Co. seems like an odd move for the London-domiciled investment vehicle. Why? At least when the Vision Fund was announced, its investing strategy appeared to be focused almost exclusively on investments in deep technology, late-stage venture capital, private equity deals, and the occasional buyout.

To be sure, such a hybrid strategy would produce an eclectic portfolio, to say the least, but it would still be primarily focused on technology. And true to that strategy, the firm has made a number of notable deals. There are too many to list in full here, but here are some highlights:

• SoftBank is likely to ink a deal with Uber. This is on top of the fund’s investment in ride-sharing companies around the world, like Didi Chuxing, Ola, Grab, and others.
• SoftBank acquired chip-maker ARM in July 2016 for $32 billion, and later sold 25 percent of ARM to the Vision Fund in March 2017.
• The Vision Fund holds a 4.9 percent stake in Nvidia reported on in May 2017.
• In Q3 2017 alone, SoftBank was the sole investor in a $4.4 billion PE deal with WeWork and another $500 million deal with WeWork China. This is on top of nine- and ten-figure deals with Flipkart, Slack, Fanatics, Nauto, and many others. (For a fuller analysis of SoftBank’s investments in Q3, check out the “Late-Stage Deals” section in Crunchbase News‘s Q3 Global VC Report.)

The Vision Fund’s investment in Saudi Electricity Co. may not be a pivot so much as an expansion of its strategy. Rather than remaining a hybrid VC-PE-Buyout group with a technology focus, this Saudi Electricity deal marks the Vision Fund’s re-framing as a more generalized asset manager.

To this end, SoftBank’s Vision Fund has reportedly been hiring both junior and senior members of big investment banks’ M&A teams for its offices in London and San Francisco. According to reporting from EFinancialCareers.com, a jobs board and news outlet covering major hiring events in the financial sector, past positions of SoftBank’s Vision Fund’s new investment team runs the gamut from Goldman Sachs, Citigroup, and Deutsche Bank to Rothschild and the Carlyle Group. Alongside SoftBank’s $3.3 billion acquisition of Fortress Investment Group in February 2017, this all suggests that SoftBank and its Vision Fund is taking a far more expansive view of its investment strategy and capabilities going forward.

What is still unknown is whether this deal with Saudi Electricity Co. is a one-off deal or part of a larger trend of diversification outside of more traditional technology companies.

Forty-five billion in the Vision Fund came from Saudi Arabia’s Public Investment Fund. Considering that Saudi Arabia is in the middle of some rather significant political turmoil, it’s possible, but unlikely, that this electricity deal has direct political motivations. This being said, such a deal deepens the relationship between Saudi Arabia and SoftBank as both parties try to usher in the future, one massive investment deal at a time.

Illustration: Li-Anne Dias