Russia fund claims talks over tech investments with SoftBank

Russia’s sovereign wealth fund has said it is discussing making joint investments in Russian technology companies with SoftBank, after deciding against taking part in a second Vision Fund.

The talks began last year when the Japanese technology conglomerate was searching for investors for what it hoped would be a $108bn Vision Fund 2, according to four people familiar with the discussions.

Any such discussions about co-operating with the Russian state would be likely to trigger US scrutiny, given the wide-ranging sanctions in place against the Kremlin.

Moscow ultimately declined over concerns about risk, the people said. The equity value of some of the first Vision Fund’s key investments later fell by $18bn.

But Kirill Dmitriev, chief executive of the state-run Russian Direct Investment Fund, said talks on a separate joint venture are continuing.

“We have been having some discussions on co-operation with SoftBank,” Mr Dmitriev told the Financial Times. He added that the discussions are “mostly on joint investments in some Russian technology businesses and technology companies”.

SoftBank denied it had ever discussed a potential deal with the Russian fund, saying it had had “no discussions on fund 2 or on joint investments” with RDIF.

SoftBank intended the Vision Fund’s second round to eclipse its $98bn first fund, which was itself the largest pool of money ever raised privately. But the governments of Saudi Arabia and Abu Dhabi, which provided 60 per cent of the funding for the first round, stalled over their involvement, forcing SoftBank to turn to sources such as the National Investment Corporation of the National Bank of Kazakhstan.

SoftBank’s ties with Russia first came under the spotlight in late 2016 when Vladimir Putin was seen putting his arm around Masayoshi Son, the Japanese group’s founder, at a gathering of business leaders in Tokyo.

From left: Russian president Vladimir Putin, Russian Direct Investment Fund chief Kirill Dmitriev, Japan Bank for International Cooperation chief Tadashi Maeda and Japanese prime minister Shinzo Abe in 2016 From left: Russian president Vladimir Putin, Russian Direct Investment Fund chief Kirill Dmitriev, Japan Bank for International Cooperation chief Tadashi Maeda and Japanese prime minister Shinzo Abe in 2016 © Mikhail Metzel/TASS/Getty

Following his meeting with Mr Putin, Mr Son told reporters that the Russian president had asked SoftBank to make “big investments” in Russia. The Kremlin declined to comment.

Progress on a wider set of Japanese investments into Russia, however, have foundered because of a festering territorial dispute dating back to the second world war over the Kurils, four small, sparsely populated islands in the Pacific.

Mr Son initially sought to reassure the Japanese government that a deal between SoftBank and the Kremlin would help Prime Minister Shinzo Abe resolve the dispute, according to two people briefed on the discussions. SoftBank denied this happened.

Mr Abe has bet heavily on personal diplomacy with Mr Putin to return at least two of the islands, meeting him more than two dozen times.

But the long-stalled talks appeared to receive a final death blow this month when Russia adopted some new amendments to its constitution, one of which bars Moscow from giving any of its territory away to a foreign power.

Viacheslav Volodin, the speaker of Russia’s lower house of parliament, said last week the amendment meant Moscow would never surrender Sakhalin, another Pacific island, or the Kurils.

Mr Dmitriev said RDIF wanted to grow its ties to Japan despite the dispute, pointing to its $1bn joint fund with the Japan Bank for International Cooperation, which has invested in a Covid-19 test that has sold more than 13m units worldwide.

“We showed that you can have business co-operation while still having political disagreement, and it works,” Mr Dmitriev said.

SoftBank’s denial of their talks is the second public rebuttal RDIF has faced in recent months as Mr Dmitriev has attempted to use the fund’s coronavirus-fighting efforts to bring Russia in from the cold.

The US-educated executive previously led failed efforts to develop a “reconciliation plan” through back channels with the Trump administration, as detailed in US special counsel Robert Mueller’s report last year into Russian election interference.

In April, the US denied RDIF’s claims that it had paid for half of a shipment of medical supplies from Moscow including ventilators made by a company under the US’s own sanctions blacklist.

RDIF, which is under more limited sanctions restricting its debt financing but is not on the blacklist, remains adamant it split the cost of the shipment, although it said it did not pay for the ventilators. Mr Dmitriev told the FT that “biases prevent [the US from using] very efficient solutions that other countries use”.