Masayoshi Son's SoftBank Group is a giant tech-investment machine whose gears are greased by generous dollops of debt. Borrowing worked well for the $80 billion company as asset values rose; it could become a problem as they go into reverse.
On Son's preferred measures, SoftBank's debt burden seems manageable.
The Japanese billionaire wants to keep borrowing below one-quarter of the value of its assets, which include stakes in e-commerce group Alibaba, two telecom operators, chipmaker Arm and a chunk of the $100 billion Vision Fund.
On that count he has a comfortable margin of safety: net debt was $45 billion at the end of June, or just 17% of his portfolio's $260 billion worth, using market prices for the listed stakes and SoftBank's estimates for its private holdings.
Cash on hand covers at least two years of bond repayments, while cash flows were more than twice annual interest payments in the 12 months to June.
Those measures don't tell the full story, however. To start, Son's telecom subsidiaries - America's Sprint and Japan's SoftBank Corp - have together borrowed about $90 billion. Legally the debt is non-recourse, which means SoftBank could walk away without being pursued by angry creditors.
But it's hard to imagine Son ever washing his hands of Sprint. Doing so would wipe out over a tenth of the Japanese group's asset value and make it harder for other units to borrow in future.
Indeed, Son recently used SoftBank's balance sheet to bail out office sublessor WeWork. Credit investors are apt to wonder whether rescuing cash-burning investees is a contingent liability.
There's another layer of leverage in Son's $100 billion Vision Fund, which owns stakes in loss-making companies like Uber Technologies. About $40 billion of the investment vehicle's capital is in preferred shares which pay a 7% annual coupon to investors like Saudi Arabia's Public Investment Fund.
Though it's not strictly debt, Son has to honour those payments before rewarding his own shareholders. The fund has also signed deals with banks allowing it to borrow up to $4.1 billion against some of its investments, partly to help pay those coupons. That magnifies the downside if the portfolio stumbles.
Finally, there's Son himself. The 62-year-old tycoon has pledged 38% of his $18 billion SoftBank stake as collateral for personal loans, Bloomberg reported, and he accounts for most of the $5 billion SoftBank has lent employees to invest in the Vision Fund. That means both he and the parent group are more geared to the vehicle's performance.
Even using Son's narrow net debt definition, SoftBank's borrowings are more burdensome than they look. The official loan-to-value ratio is premised on a puffed-up portfolio.
For example, the company values the 26% shareholding in Alibaba at its $120 billion market value even though taxes on any disposal could be up to 30%, Bernstein analysts reckon.
Equity investors rightly take a more sceptical view. SoftBank's market value is just 38% of the touted value of Son's portfolio, after deducting debt.
The group's ability to meet future interest repayments is also less solid than it looks. SoftBank received about $4.5 billion in cash from its portfolio companies in the 12 months to the end of June. This comfortably covered debt-servicing costs of about $2.1 billion.
But that cash came from just two sources. The first was the Vision Fund, which paid $2 billion in management fees and proceeds from the sale of holdings like chipmaker Nvidia. The second was SoftBank's eponymous Japanese telecom business, which paid its parent $2.5 billion in dividends.
Cash proceeds from the Vision Fund are hardly reliable: demand for initial public offerings of tech companies has cooled after the WeWork flop. If Son depended entirely on payments from the local telecom business, he would have little room for manoeuvre.
In the 12 months to June, SoftBank's interest bill was 82% of the dividends it received from the unit. SoftBank also faces a looming spike in debt repayments, with almost $14 billion due in the next three calendar years, using Refinitiv data.
So what can Son do if he needs cash? The good news is that he's hardly short of liquid assets: selling just 4% of Alibaba at its current price could cover all SoftBank bonds falling due from 2020 to 2022, assuming a 30% tax rate.
The tycoon could also offload unlisted assets like Arm, which he bought for about $32 billion in 2016.
The bad news is that a forced seller rarely gets a good price. SoftBank is by far Alibaba's largest shareholder; reducing its stake would create a self-reinforcing overhang on the stock.
Meanwhile Son's financial engineering would backfire as asset values fell. SoftBank's net debt is almost two-fifths of its enterprise value. A 20% fall in the value of its portfolio should therefore send the shares down by almost a third. At that point, Son's giant investment machine would be running in reverse.