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Softbank May Have Trouble Leaving Net Bubble Behind Sat Aug 17, 3:50 PM ET

By Eriko Amaha

TOKYO (Reuters) – Japan’s Softbank Corp. ( news – web sites), an ambitious high-tech powerhouse that has reinvented itself more often than Madonna ( news – web sites), may find it hard to exit troubled stock market and banking ventures as it recasts its fortunes yet again.

Softbank has sold off many of its Internet venture holdings since the dot-com bubble burst, but it may not be so easy to pull out of its money-losing Nasdaq Japan venture, analysts said, despite an expected exit by the U.S. Nasdaq Stock Market.

Similarly, government officials appear to be pressuring Softbank not to sell its 49 percent stake in Aozora Bank, even though Softbank badly needs funds for its nascent business providing high-speed Internet access.

“The risk is that if the Japanese financial authorities say Softbank should not easily give up something like Nasdaq Japan which serves the public interest, Softbank has to keep the exchange running even if it loses money,” said Makoto Ueno, a senior analyst at Daiwa Institute of Research.

So far, Softbank is insisting it will stick with the Nasdaq Japan venture, set up with the U.S. Nasdaq and other brokerage firms at the peak of the Internet bubble in 1999.

Softbank’s stake in Nasdaq Japan was called into question when local media reported on Wednesday that the U.S. Nasdaq planned to withdraw from the venture. Steep operating costs had forced the U.S. entity to write down investments in Nasdaq Japan, snarling its plan to create a global 24-hour trading system.

Although some analysts said Softbank’s exposure to Nasdaq Japan could remain limited to its investments in capital, others voiced concerns that Softbank may have to shoulder possible future costs to keep the bourse going.

Nasdaq Japan said it had an accumulative loss of 5.2 billion yen ($44.37 million) at the end of last year. Capital for Nasdaq Japan has been boosted to 4.16 billion yen from an initial 600 million yen, and Softbank, which owns 43 percent of Nasdaq Japan, has pitched in its portion.

The U.S. Nasdaq Stock Market wrote down $20.1 million — $15.2 million for such items as outstanding and unfunded loans and foreign exchange losses, and $4.9 million for the costs of hatching a developmental trading platform.

A Softbank spokeswoman said the company has invested only capital and not extended any loans to Nasdaq Japan.

But given that the bourse is unlikely to become profitable any time soon amid a global downturn in equity markets, and with no potential buyers around, Softbank’s stake in Nasdaq Japan remains a concern for investors.

“Softbank is now in a phase where it needs money. They have been trying to liquidate any assets they can to get cash,” said Jiro Izumi, an analyst at Tokyo-Mitsubishi Securities.

DASHED HOPES

Softbank, which has gone from software distributor to computer systems integrator to Internet incubator in the two decades since its founding, is now trying to leave the dot-com bubble behind by shifting its focus to high-speed communications.

Softbank has said it is considering selling its 49 percent stake in Aozora, created from the ashes of failed Nippon Credit Bank to provide funding to small and mid-sized businesses. It bought the holding two years ago for about 100 billion yen.

Masayoshi Son, the founder and president of Softbank, said in June that his company was studying the possibility of a sale following a change in Japanese banking laws in April.

Softbank had agreed with other shareholders to hold the Aozora Bank stake for at least two years after its purchase in August 2000, he said.

But here again, Softbank’s sale of the Aozora stake may face hurdles.

Financial Services Minister Hakuo Yanagisawa said a sale would call into question Softbank’s sense of responsibility as an investor with long-term commitment.

Officials at the top banking regulator, the Financial Services Agency, have also expressed resistance toward letting a fund become a bank’s majority stakeholder for fear of destabilizing the bank’s management if too much emphasis is put on quick capital gains.

Aozora this month said it was on track to meet its half-year operating profit target of 15 billion yen, after posting 7.4 billion yen for the first quarter.

However, it said it still had 469.7 billion yen in bad debts at the end of June, compared with 489.6 billion yen at the end of March.

In the past year, Softbank has been divesting its holdings in several high-profile companies including U.S. Internet firm Yahoo Inc and E*Trade Group Inc to shed its outstanding debt.

But concerns about Softbank’s cash flow and uncertainty over its businesses have been weighing on the company’s shares.

The stock hit a lifetime low last week when the Nasdaq debacle burst onto the scene. On Thursday, Softbank shares closed up 5.96 percent at 1,245 yen, rebounding after a two-day fall, while the Nikkei 225-share average put on 1.63 percent.

($17.18 yen)

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