Japanese banks to halt $3 billion financing to SoftBank

Japan’s three largest banks have halted talks with SoftBank Group Corp’s for a massive $3 billion financing that was supposed to be a part of a $9.5 billion bailout for the group’s subsidiary, WeWork.

Reportedly,
the banks claim that they are already at the peak of their internal lending
limits for SoftBank, meaning that 2020 may not be beginning on a positive foot
for the Japanese technology firm. WeWork, the U.S based co-working start-up, is
causing considerable concern amongst banks that are apprehensive about rescuing
the business by injecting much-needed finance into it.

Will WeWork Eventually Get Financing?

WeWork
has raised SoftBank’s debt ratio substantially in 2019, making the firm a
high-risk lending entity for Japanese banks. However, bankers have commented
that the company is a very important client and they would like to pull as many
strings as possible in order to help.

Nevertheless,
they also said that they have to consider their credit risk and cannot be
flexible only for SoftBank. S&P Global Ratings Senior Director Ryoji
Yoshizawa confirmed this view and stated that credit criteria cannot only be
loosened for SoftBank.

This
is a worrisome time for the conglomerate found by Masayoshi Son, as it was a
major source of income for banks in Japan- the world’s third-largest economy-
yet is still unable to secure financing this time around. Banks usually have to
lend at extremely low-interest rates in the country on account of deflation and
would have probably not shied away from providing for one of its biggest
customers, had circumstances allowed.

Now,
SoftBank is exploring different options of finance including possible interest
by Mizuho Financial Group Inc, Sumitomo Mitsui Financial Group Inc., and
Mitsubishi UFJ Financial Group to secretly finance the bailout. However, this
information has not been confirmed by the companies.

One
option is to put up the 26% share that SoftBank has in the Chinese Alibaba
Group Holding Ltd. in the form of collateral to get the required financing from
the banks. The other option is to opt for a syndicated loan, which is a loan
provided by a group of financers instead of one. However, this second option
may take considerable time and delay the process of obtaining the required funds.

How Much Does The Company Owe?

SoftBank has raised quite a significant amount of debt this year and it all started when WeWork’s initial public offering had to be canceled because investors were wary of co-founder Adam-Neumann’s lavish and irresponsible lifestyle. Investors had also displayed a lack of confidence in the company’s corporate governance.

Currently,
the company has approximately $50.28 billion in outstanding bonds and another
$36 billion in loans from banks, according to Refinitiv data. The company now
has the seventh-highest score for debt in the Nikkei 225 Stock Average with a
3.7% average cost of debt.

However,
the good news is that the interest coverage ratio is 1:3, meaning that the
company has 3 times as much income as its interest payments. Debt servicing
should not be a major hassle.

Seems
like all is not lost for SoftBank and WeWork may still have a chance to prosper
and regain composure in 2020.