The difference between the on-paper value and the real value of these assets is so vast that everyone involved is in a Mexican standoff.
They're all hoping that if nobody blinks, the economy will get better and their investments might actually become good unicorn bets.
It's a similar reason to why properties can stay vacant with no tenants for years and years and years. I'm almost convinced that we need a law that forces unproductive assets to turn into write-downs after some window of time.
It was a nuclear disaster before the lockdowns. Corporate real estate is about to see a biblical correction and lease terms are about to become the friendliest they've ever been. I keep seeing one positive article about their prospects after another and yet I can't find anyone rational who agrees with any of it.
I say this about pretty much everything in the mainstream media nowadays, whether it's WeWank-related or not.
We had one, it was called the "law of compound interest". Back when it was in effect, it bled these writedown-refusers to death.
Unfortunately it got repealed by Zero Interest Rate Policy.
In a sense, that's what interest rates are: they're the penalty function applied to stuborn-refusal-to-write-down. If rates are too high a bunch of startups get killed needlessly by capital asphyxiation. If rates are too low (like now) you get zombies.
The scale and negative follow-on effects of unproductive landholding is much worse than this problem isolated to the tech industry.
2) Because the assets are not liquid the “value” of the assets is highly debatable. (Value of your stock portfolio vs private equity holdings).
3) Some assets are not free to own. Simple example being property. It’s worth a lot but also costs a lot (taxes, Maint, ...) to own it. This is in theory valued into the asset value but really on a point in time basis. If the asset isn’t “productive” in earning income then having it on your books with those expenses just keeps eating away at funds elsewhere. Think owning a paid off rental property that doesn’t earn enough to cover its annual costs. Worth a lot in a fire sale, but terrible item to have on the books long term.
4) Companies can have negative goodwill on their balance sheet, especially if there are questions about the quality of the fundamental business or management team. Outsiders may say the company owns a lot of stuff but it’s so poorly managed that that that stuff isn’t worth what it’s normally worth. Yahoo had this issue where the market cap of the company was less than the stock Yahoo owned in other companies. “Yahoo the company” and its team was literally considered to be worth negative dollars.
[0] https://www.reuters.com/article/us-softbank-group-alibaba/a-...
I.e. I can incorporate a company, borrow 100m, and buy 100m of Alibaba. It doesn't mean my company is worth anywhere close to 100m...
That's not what goodwill is. Goodwill is the difference between book value and purchase price of assets to make the numbers work. It's nothing to do with the quality of the business or management team.
At least part of that is accomplished by never marking your assets to market. In other words, the assets simply aren't worth what the balance sheet states. One of the oldest tricks in the book.