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SoftBank to write down minimum $5 billion for WeWork, other losses: Bloomberg

Published 10/25/2019, 06:33 AM
© Reuters. FILE PHOTO: Japan's SoftBank Group Corp Chief Executive Masayoshi Son bows his head after his presentation at a news conference in Tokyo
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By Rocky Swift and Junko Fujita

TOKYO (Reuters) - 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 due to a slump in the value of the U.S. office sharing startup and some other top holdings.

SoftBank Group Corp (T:9984) agreed to offer a $9.5 billion lifeline to WeWork this week to take control of the U.S. office-space sharing startup, now valued at $8 billion.

The deal, which comes on top of more than $10 billion 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% in Tokyo.

Since spinning off its namesake telecom unit SoftBank Corp (T:9434), 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 5 trillion yen of net debt on its balance sheet - more than half its 9 trillion yen market capitalization.

Both Moody's and S&P Global (NYSE:SPGI) 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%, 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 Vision Fund include British chip designer ARM, Slack Technologies Inc (N:WORK), and ride-hailing firms such as Uber Technologies Inc (N:UBER), 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.

© Reuters. FILE PHOTO: Japan's SoftBank Group Corp Chief Executive Masayoshi Son bows his head after his presentation at a news conference in Tokyo

"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".

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