SoftBank’s $3 billion talks with banks may hit $9.5b package for WeWork

SoftBank Group Corp’s talks to secure $3 billion from Japan’s three biggest banks have stalled as the lenders have hit internal lending limits to the firm, two people said, complicating a $9.5 billion rescue package for WeWork.

The Japanese technology conglomerate is now likely to enter the new year without the WeWork financing in place, the people said, adding the banks are also concerned about the risks involved in rescuing the US office-sharing startup.

Mizuho Financial Group Inc, Mitsubishi UFJ Financial Group Inc (MUFG) and Sumitomo Mitsui Financial Group Inc (SMFG) are seeking ways to provide the financing while offsetting exposure, the people said, declining to be identified because the information is not public.

SoftBank did not respond to a request for comment. Mizuho, MUFG and SMFG declined to comment.

One option is to use some of SoftBank’s 26 per cent stake in Chinese e-commerce major Alibaba Group Holding Ltd as collateral, the people said.

“SoftBank is an important client so we want to do everything we can to help, but we have to consider our credit risk,” said a senior banker.

The talks illustrate the difficulty SoftBank poses for Japan’s banks. Founder Masayoshi Son’s tech juggernaut has long been a lucrative source of corporate lending in the world’s third-largest economy, where banks typically have to lend at ultra-low interest rates given years of deflation.

But SoftBank’s growing debt and turmoil at major bet WeWork earlier this year also highlight the firm’s higher risk profile.

“Banks cannot loosen their credit criteria only for SoftBank,” said S&P Global Ratings senior director Ryoji Yoshizawa.

Another option to spread the risk is a syndicated loan, Yoshizawa said, adding this would be time-consuming - potentially delaying financing.

SoftBank in October said it would launch a $9.5 billion bailout of WeWork after the cancellation of the startup’s initial public offering due to investor concerns over its corporate governance and co-founder Adam Neumann’s hard-partying ways.

Son has said he turned a blind eye to Neumann’s management, but that the company is still a solid business. The domestic bank deadlock led SoftBank to secure a $1.75 billion line of credit from Goldman Sachs Group Inc, the people said.

Goldman Sachs declined to comment.

SoftBank has 5.5 trillion yen ($50.28 billion) in outstanding bonds and another 4 trillion yen in bank loans, Refinitiv data showed. Its weighted average cost of debt is 3.7 per cent, the seventh-highest among all companies on the Nikkei 225 Stock Average.

Moody’s calculations showed the conglomerate’s interest coverage ratio is 1.3, meaning group income is enough to service its debt, with some left over.

Japanese government bonds prices were little changed on Monday in thin trade before the year-end holiday season, as investors booked profits after a recent yield rally that pushed benchmark debt yields into positive territory for the first time in nine months.

In addition, some investors stayed on the sidelines before an auction of two-year debt scheduled for Tuesday.

Benchmark 10-year JGB futures fell 0.09 point to 151.7, with a trading volume of 11,333 lots.

The 10-year JGB yield was flat at 0.005 per cent. Since reaching a low of minus 0.29 per cent in early September, 10-year JGB yields have steadily risen due to improved optimism about the global economy and reduced expectations for easing from the Bank of Japan.

The 20-year JGB yield was flat at 0.310 per cent. The 30-year JGB yield was unchanged at 0.440 per cent. The five-year yield fell 1 basis point to minus 0.090 per cent. At the short end of the curve, the two-year JGB yield was flat at minus 0.100 per cent.

Japanese stocks rose slightly on Monday as the early approval of a cancer drug and an improved earnings outlook boosted the healthcare sector in thin trade ahead of the Christmas and New Year holidays.

Shares in the consumer staples sector also rose due to hope of a pick-up in spending during the year-end shopping season.

The Nikkei index ended up 0.02 per cent at 23,821.11. It has risen 19 per cent so far this year.

The healthcare sector extended recent gains after the US Food and Drug Administration on Friday approved a drug from Daiichi Sankyo Co Ltd and AstraZeneca PLC to treat an advanced form of breast cancer, three months ahead of schedule.

Reuters