SoftBank to Write Down Minimum $5 Billion for WeWork, Other Losses: Report

SoftBank has ample funds to endure the pain from its massive bailout of WeWork, analysts said, even as it is reportedly set to write down at least $5 billion (roughly Rs. 35,433 crores) due to a slump in the value of the US office sharing startup and some other top holdings.

SoftBank Group agreed to offer a $9.5 billion (roughly Rs. 67,323 crores) lifeline to WeWork this week to take control of the US office-space sharing startup, now valued at $8 billion (roughly Rs. 56,693 crores).

The deal, which comes on top of more than $10 billion (roughly Rs. 70,866 crores) investment SoftBank has already committed, is set to strain the Japanese investment firm's bottom line.

Citing people with knowledge of the matter, Bloomberg said SoftBank would announce the writedown along with its second-quarter earnings on Nov. 6.

A SoftBank spokesman declined to comment on the report. The company's shares fell 1.2 percent in Tokyo.

Since spinning off its namesake telecom unit SoftBank Corporation, analysts now view SoftBank as a financial holding company. More akin to a bank, the company is taking on more debt and relying on cash flows from its operating units to pay the interest.

"From a leverage standpoint, SoftBank has some cushion to take on additional debt," said Moody's analyst Motoki Yanase.

Although SoftBank has an army of retail investors in yield-strapped Japan willing to buy its junk bonds, it already holds about JPY 5 trillion (roughly Rs. 3,26,393 crores) of net debt on its balance sheet - more than half its JPY 9 trillion (roughly Rs. 5,87,508 crores) market capitalisation.

Both Moody's and S&P Global rate SoftBank below investment grade. That means the company has to pay higher interest on its bonds and loans. The company's weighted average cost of debt is 3.7 percent, the seventh-highest among all companies on the Nikkei 225 Stock Average, according to Refinitiv data.

Even so, SoftBank retains huge holdings in listed companies that could be sold off if the company needs cash, said S&P analyst Hiroyuki Nishikawa.

Portfolio companies backed by SoftBank and its $100 billion (roughly Rs. 7,08,664 crores) Vision Fund include British chip designer ARM, Slack Technologies, and ride-hailing firms such as Uber Technologies, Grab and Didi.

Jefferies downgraded SoftBank stock to hold from buy on Friday, saying that WeWork rescue sets an "undesirable precedent" for the group's private investments.

"We don't know where the risk limit is for SoftBank given they have bet so heavily," said Jefferies analyst Atul Goyal. Among more typical private equity funds "most of them probably let go of the failures, they don't double down".

© Thomson Reuters 2019