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Why Japan's SoftBank is standing by the Saudi government

Despite the furore over Jamal Khashoggi's murder, the Japanese company is far from abandoning lucrative ties with the Saudis.

Saudi Crown Prince Mohammed bin Salman and Masayoshi Son, SoftBank Group Corp. Chairman and CEO, attend the Future Investment Initiative conference in Riyadh
Image: Saudi Arabia has been the biggest single investor by far in Mr Son's Vision Fund
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In the days after the disappearance and murder last month of Jamal Khashoggi, a Saudi Arabian journalist, the Saudi government got plenty of condemnation from Western governments.

At the same time, Western business leaders largely stayed away from the kingdom's Future Investment Initiative conference, nicknamed "Davos in the Desert".

However, the event was well attended by business leaders from Asia, particularly Japan.

One prominent Japanese business person who did stay away, though, was Masayoshi Son, the billionaire chief executive of SoftBank, the giant technology and telecoms conglomerate.

This was seen as significant because Saudi Arabia has been the biggest single investor by far in the $93bn (£71.5bn) Vision Fund set up by Mr Son to back fast-growing companies such as Uber, Slack, Nvidia and WeWork.

The kingdom put up an estimated $45bn (£35bn) towards the fund while SoftBank has also partnered with the Public Investment Fund, Saudi Arabia's sovereign wealth fund, in projects such as solar panel technology.

Masayoshi Son founded the Vision Fund
Image: Mr Son called Jamal Khashoggi's killing a 'horrible incident'

SoftBank, which is best known in the UK for paying £25bn for the chip designer Arm Holdings in late 2016, is regarded as an important partner to the kingdom.

Mr Son's close relationship with Crown Prince Mohammed bin Salman, whom he described earlier this year as "a great person and a great investor", has bestowed credibility on the latter's drive to attract foreign investment to Saudi Arabia.

So when Mr Son did not attend the conference, despite being in Riyadh at the time, it led to speculation about SoftBank's future relationship with the kingdom.

The Khashoggi scandal also badly hurt SoftBank itself.

Between the close of business on 4 October, when Mr Khashoggi's disappearance was first reported, and 1 November, when the Turkish authorities revealed that Mr Khashoggi was killed the moment he entered the Saudi consulate in Istanbul, shares of SoftBank fell by 26% - although that also partly reflected concerns over pressure being exerted by the Japanese government on mobile phone operators to cut their fees.

:: Khashoggi murder: Saudis sent team to clear up evidence, says Turkish official

Tech valuations look frothy in a lot of markets, with a lot of the good news unveiled today already taken as read by investors
Ian King

Today though, in his first public comments about the Khashoggi affair, Mr Son reaffirmed his commitment to working with the kingdom.

Speaking in Tokyo, as SoftBank updated the market on its latest results, Mr Son condemned the "horrible incident" that had happened.

But he insisted: "We have accepted funds from the people of Saudi Arabia that will be critical to diversifying the economy so that it will not be dependent only on oil.

"It is true that this was a tragic case, but we also have a responsibility that we must uphold for the people of Saudi Arabia instead of turning our backs on them."

Mr Son also insisted that Saudi Arabia's investment in the Vision Fund did not appear to be deterring tech companies from accepting backing from it.

Jamal Khashoggi was killed after going into the consulate on 2 October
Image: Jamal Khashoggi was killed at the Saudi consulate in Istanbul

Two Silicon Valley-based start-ups - Zume, which uses robots to make pizza; and View, which makes glare-reducing glass for windows - last week respectively received $375m (£288m) and $1.1bn (£850m) from the fund.

He could also point to a strong rise in profits at SoftBank due to the growth of the Vision Fund.

Operating profits in the three months to the end of September came in at ¥705.7bn (£4.8bn) - a 78% increase - due partly to revaluations in the worth of assets such as WeWork, the shared office space group, but also due to a $1.3bn (£1bn) gain on the sale of the fund's stake in Flipkart, the Indian e-commerce company, which has just been bought by Warren Buffett's Berkshire Hathaway.

The robust performance is unlikely, though, to end the questions investors have concerning SoftBank.

Possibly the most pressing of these is the profitability of its Japanese mobile phone operations, for which a flotation is planned, following price cuts from the market leader, NTT Docomo, in response to government pressure.

The proposed flotation had been expected to rival in size the $25bn (£19bn) record set by Alibaba, the Chinese e-commerce giant, at its IPO in 2014.

Moreover, tech valuations look frothy in a lot of markets, with a lot of the good news unveiled today already taken as read by investors.

And, above all else, the whole Khashoggi issue continues to haunt the company. Mr Son may have reiterated his commitment to his partnership with the Saudis today. However, if Silicon Valley gets queasy about the relationship, the Vision Fund could yet find itself being cut out of attractive investment opportunities in the future.