Cornered Kitao Laments on Masayoshi Son

At an Information Meeting, His Words Made Audiences Silent when the “Great Leader” Wailing.

December 20, 2012

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One year has passed since FACTA started to reveal SBI‘s strange financial deals in January 2012 issue. SBI’s “great leader”, Yoshitaka Kitao is about to collapse on a ring, groggy with our punches. We witnessed a rare occasion that gung-ho Kitao wailing, in an information meeting to shareholders, held November 27th, at Hotel New Ohtani. SBI announced an offering of SBI Notes with payment date on 28th, and it held information meetings in Tokyo, Osaka, and Nagoya, for it needed to rely on retail investors for the life line money.

Trick of 2.3 billion yen loss from Homeo

It was an odd conference. More than 500 seats were prepared, and a table was set in entrance to sell Kitao’s books. Two big screens were set in both wings, broadcasting stories of developing ALA—an amino acid now being SBI’s only hope for big capital gain. Apparently, those attended in the weekday afternoon were mostly retired, pension-relying males. As usual, the presentation started as propaganda of Kitao. Kitao explained the whole 2 hours, with strong emphasis on IFRS accounting as a starter, for he had to justify the net loss of 1.36 billion yen for 2Q 2013, even though he employed whatever method to inflate earnings. He reiterated that he had to reshuffle business portfolio, and the shape of the company looks different when IFRS was applied. He meant that the loss was derived because of IFRS, but it was nothing but a bogus logic. As FACTA pointed out in last month, SBI escaped heavy impairment loss from SBI Insurance as it adopted IFRS, but in return, listed shares in China took some toll, hitting the P&L. Some items were not even related to IFRS. In his presentation, “Changes Derived from Restructuring” included a loss caused by the sale of Homeo in November 2011. Kitao casually explained that the loss was due to a reduced consolidated sales because of the Homeo sale, but Homeo’s top line sales was 9.3 billion in June 2012, thus 2.3 billion reduced sales in half-year period does not fit.

FACTA revealed an outright lie of Kitao that Homeo’s buyer was not a third party investor. The properties held by the buyer of Homeo, Hiroshi Fujiwara, the founder of Internet Research Institute, were collateralized—total of 9.3 billion yen--- by SBI Incubation, SBI Investment, and SBI Broadband Capital, all SBI subsidiaries. 5.7 billion collateralization to Fujiwara’s home (which was released October 12, 2011) must have been a loan he borrowed from SBI in order to buy back IRI shares from Orix. SBI asked Fujiwara to buy deeply-red ink Homeo, and SBI must have given up a part of the loan to Fujiwara. SBI must have recovered 3.4 billion yen from Fujiwara, when he received a settlement of lawsuit from IXI, a bankrupted IT vendor, because of which IRI got de-listed from TSE Mothers. In short, the 2.3 billion yen loss of Homeo was the difference of 5.7 billion loan amount and 3.4 billion recover amount. If this loss was not revealed, SBI could have ended the 2Q 2013 in black ink of 1 billion yen. IFRS was just an excuse of the loss, as always happens in Kitao’s shenanigans.

ALA Factory Planned in 50,000 population Bahrain

Kitao spared 40 minutes out of 120 minutes of presentation meeting for bio-related business, meaning ALA’s bright future. He reckons SBI being new industry creator, and bio-technology is the new industry, of which ALA is the focus, which is expected to grow big. We have been reporting SBI Pharma, an entity investing into this ALA business is key to Kitao’s trick to bloat market capitalization. “A session was held in Madrid on ALA”, “AN eye-popping results were announced by Hawaii University on ALA”, “ALA-related investment business expanding in China and Germany”….Kitao pointed out stories after stories all sound like the business growing. He put a strong emphasis on Bahrain that SBI agreed with Bahrain government for ALA joint venture, including a construction of ALA factory in Bahrain.

When the presentation was over, the Q&A period was rather calm, but the mood of the hall changed when one participant questioned. That shareholder pointed out that Softbank shares rose 3 times whereas SBI shares went down to 1/10th since Kitao parted with Son, and asked to Kitao:” Kitao-san always talks about brilliant cut and synergy effects. But your top line no longer grows, and P&L suffering a loss. Kitao-san, is your brilliant cut strategy truly shines like brilliantly cut diamonds?” We always heard in any SBI presentation on brilliant cut strategy and synergies. But what about the truth? The answer to this shareholder can be found in our past issues. SBI Veritrance or Homeo were sold to frame up decent earnings at the year-end. The shareholder evaluated Kitao’s apple-in-the-eye bio-business in one sweep. “You want to expand bio business with such a small sales figure? Kitao-san, aren’t you expanding into irrelevant business? Making factory in Bahrain? Do you know how much is the population there? Only 50,000 people live there. What makes you construct a factory in such place?”

The whole audience turned silent with the critical question. “I got what you meant”. Kitao replied, and with a moment, then mentioned the name of his former partner. “Let’s see, Son-san looks shining bright now.“ unlike his usual ranting, Kitao continued as if talking to himself. “Softbank had a difficult period. Four consecutive red ink results with more than 100 billion yen…. And it was in danger….. Then in June 2008, I offered to Son-san, that you can sell SBI shares, and use the proceeds in your business. Son-san was delighted, with that 200 billion yen money, and he said to me “Kita-yan, thank you….” Kitao’s remarks reverberated in silenced hall.

15 billion yen borrowing rejected by Son

“The most important thing in managing a company is to survive.” Kitao pleaded to audiences, illustrating how many banks went belly-up in the past 20 years, and unexpected failures occurred. “I survived in such a tumultuous period. You know how Nomura’s business base turned sour? I have been surviving in such an environment”. Kitao reiterated word “survival”. How come he confessed as many can detect he did whatever to surivive, and quoting the story of his past support to Son?

In early September, Kitao asked Son to introduce Yahoo’s new managers, and offered them to buy group companies other than SBI Securities and Sumishin SBI Net Bank, but failed in vain. Later, Kitao asked Son personally to lend SBI 15 billion yen loan, but Son, who did not have leeway due to acquisition of Sprint Nextell, turned down that plea.

“Isn’t that your turn to help me this time, Son-san?” Kitao must have swallowed that word.

SEFC has expanded the area of inspection from SBI Securities to individual investments of SBI Investment. It seems to have strong interest on inexplicable sale of Klab shares held by SBI Boradband Capital L.P.

SBI Notes issued in the late November was used to redeem the notes issued last year, managed by SBI Securities. SBI is in tight working capital management.

Despite its maneuvering, SBI’s X-day is approaching fast.