SoftBank has reportedly hit a roadblock on its way to provide liquidity to one of its biggest and most controversial investment bets, WeWork. Back in October, the Japanese business conglomerate had announced that it would lend $9.5 billion to the struggling startup WeWork. So far, the Softbank has managed to get $1.75 billion in line of credit from Goldman Sachs. For another $3 billion, other banks in Japan were approached but it seems like those talks have been stalled for the while.
According to a Reuters report, the talks have been ‘stalled’ with the three biggest banks in Japan as the lenders have hit internal lending limits to the firm. Experts suggest that another reason for this could be that the banks are not assured of a return on their investment given the startup’s condition.
The base of all this can be traced back to WeWork’s failed IPO bid. It was during the IPO filing, that multiple misdealings and corruption cases came into light as company’s financial documents became public. All of that ultimately resulted in founder Adam Neuman being asked to leave, though not without making him multiple times richer. Around the same time, it was announced that SoftBank would be getting control of 80% of the startup in order to save its multi-billion investment in the company. In return, they would be providing resources to the company to deal with their financial setbacks.
A few days back, it was reported that Goldman Sachs would be lending $1.75 billion to Softbank, with WeWork being the co lender. This was the first attempt towards the $9.5 billion commitment that SoftBank made to the company.
For the rest, SoftBank turned to the market in Japan, reportedly seeking credit lines from Mizuho Financial Group Inc, Mitsubishi UFJ Financial Group Inc (MUFG) and Sumitomo Mitsui Financial Group Inc (SMFG). Dialogue between the firms had started but nothing conclusive had come out of it.
But now, it seems like SoftBank’s growing debt in light of its deal with WeWork has made the banks wary of their money. SoftBank has a great reputation in the Japanese market but banks are being cautious with the huge risk that WeWork poses.
“Banks cannot loosen their credit criteria only for SoftBank,” said S&P Global Ratings senior director Ryoji Yoshizawa in an interaction with Reuters.
For now, the only financially viable option that SoftBank could use, is to liquidate part of their bumper 26% shareholding in Chinese e-commerce major Alibaba Group Holding Ltd as collateral. Another option can be a syndicated loan.