This is another Shenanigan of SBI---Contradiction Cannot be Concealed with Loss-Making Subsidiaries
March 20, 2013
As we write about SBI, one can easily remember Yoshitaka Kitao stating: “I have much wisdom here in my brain!” It was in 2006, when he criticized darling of the era, Takafumi Horie of livedoor, acquiring 35% of Nippon Broadcasting. Then CEO of Softbank Investment, Kitao was asked by Fuji TV, the defacto parent of Nippon Broadcasting for a help. Pointing out his head with right index finger, Kitao held a press conference as a white knight, and lambasted.
8 years passed, time flies, and we agree that he’s certainly got wisdom in financial deals, but he grew only those of cunning and unjust wisdoms. We think our back-to-back reports on his deeds have proven so. This time, he used SBI Biotech, a consolidated subsidiary for a trick.
85% Down on Valuation
In the end of January this year, unit price of a mutual fund, SBI Unlisted Stocks Inclusion Fund III (Official Name: SBI Bond and Private Equity Fund III(“BPEF III”) dropped 5%. The reason of such a decline was due to SBI Biotech. The valuation of SBI Biotech was drawn down from 200,000 yen/share to 28,847.3 yen/share, nearly 85%. The fund explained in its report that as the quoted price of the stock had not been made for 1 month, so according to the rule stipulated by The Investment Fund Association, Japan, the stock was valued at its per share net worth.
There exist two different prices for the SBI Biotech, and this poses a critical problem. In the BPEF III, 28,847 yen is now the price, whereas SBI still books its SBI Biotech as 187,943 yen, as SBI seems not have the SBI Biotech stock written down in 3Q earnings report of FY March 2013, announced in February 7th.
BPEF III’s auditor is Yusei Auditing Office. Yoshitaka Kato, the representative of the auditing office is the auditor of “SBI Children’s Foundation”, which was founded by Kitao, and headed by Yoshihisa Tabuchi, the former president of Nomura Securities. Junichiro Yamada, the honorable chairman of Yamada Partners, the parent of Yusei, is on the board of that foundation. Anyway, they are all “intimate friends” of SBI.
The cosmetic operation using SBI Biotech is not limited to that. In December 25th, 2012, SBI Biotech had share-swapped the 100% of Quark Pharmaceuticals, one month after it consolidated Quark. What is the implication of the move? SBI claims, as always, to emphasize a synergy with resource-integration to accelerate R&D. Despite bogus claim of scheduled IPOs, both of the bio companies are in terrible shape in reality.
SBI Biotech was founded in 2007, with Kenichi Arai, Tokyo University-educated M.D., as the president, who was a one-time head of The Institute of Medical Science of Tokyo University. Kitao must had viewed Arai, who insisted necessity of bio-related ventures, as an ideal person to rely on. Arai’s reputation with medical community such as Tokyo University, however, is not ideal. “He has been claiming college-led venture business, but few in medical field believe he can develop meaningful drugs. His prime has passed. ”, a person related to the Tokyo University Medical School quipped. SBI Biotech is supposedly going IPO within 2013, but without any successful R&D, it won’t be possible.
Kitao once stated on Quark: “I am expecting it the most among our investees”. But look, Quark’s earnings are in disaster. Red ink of more than $ 20 million continued for the past three consecutive years, and its balance sheet stands at negative net worth of $ 69.5 million as of December 2011. We suspect that Kitao avoided Quark to going bankrupt while held directly by SBI-managed funds. There is no way to turn around a red-ink company, if it was acquired by another red ink company. SBI Biotech share price plummeted by 85%, we expect the price of Quark held by the fund would come down from 473 million yen to 68.25 million yen. This is a portion held via a private mutual fund in Luxembourg, but in a nutshell, the valuation of Quark worth 830 million would shrink to 125 million yen. For BPEFIII, with 3.2 billion yen net asset value, this drop would be critical, but cannot avoid the fate. SBI magic and valuation logic are now busted.