This is where the risk to the AI juggernaut and possibly the world economy is lurking.
Should SoftBank be unable to repay or refinance the debts it is taking on, the risk goes from theoretical to kaboom pretty fast and all the other daisy-chain financings get stress-tested in a real-world cascade.
And unfortunately chatbots in general and OpenAI/Sam Altman in particular may not be the future that Mr. Son seems to think.
Way back in June 2019 we mentioned:
"Something is not quite right with SoftBank"
Additionally, SoftBank investee WeWork was out looking for a few billion dollar line of credit.
Shades of another disruptor, Sam Insull, leverage at the holding company level, leverage at the operating company level, leverage all the way down...
That was around the time SoftBank was rattling the tin cup and using graphics like this to explain the investment:
From Bloomberg via the Japan Times, April 23:
SoftBank is seeking a $10 billion loan secured by its shares in U.S. artificial intelligence giant OpenAI, people familiar with the matter said, as it takes on more debt for its push into AI.
The two-year margin loan would carry an option for the Japanese conglomerate to extend the borrowing by an additional year, according to the people, who asked not to be identified discussing private matters. A margin loan is an arrangement in which companies use their assets such as stock for collateral to borrow against.
A SoftBank representative declined to comment.
SoftBank has been piling on debt as its founder Masayoshi Son seeks to position himself as a linchpin in the global AI boom, with large-scale investments into ChatGPT maker OpenAI. SoftBank recently committed an additional $30 billion to the U.S. firm after having already previously put in more than that same amount. Last month, SoftBank signed a $40 billion loan — its largest-ever lending facility solely denominated in dollars — in part for its most recent follow-on investment.
In March, S&P Global Ratings lowered the group’s credit outlook to negative from stable, citing the danger that its investments in OpenAI may hurt the Japanese company’s liquidity and credit quality of its assets....
...SoftBank is no stranger to margin loans. As of November, it had expanded a margin loan using its shares in Arm to $20 billion....
....MUCH MORE
We used today's intro as part of the outro from March 6's "SoftBank Races to Borrow $40B to Fund Massive OpenAI Stake amid Mounting Debt Pressure":
Mr. Son is the King of leveraged beta (he was briefly the richest person in the world in 1999) and thus far has managed to bounce back from monster-sized drawdowns but the current situation is wild even for him.
First up, Softbank's last earnings report, February 12:
Where Will SoftBank Get The Money To Fund Their Commitment To OpenAI?
By writing-up their stake in OpenAI, naturellement.
From Nikkei Asia, February 12:
SoftBank profit quintuples as OpenAI bet lifts Vision Funds
IPOs set to to deliver 'significant value' to Japanese tech investor, says CFO
SoftBank Group on Thursday reported a net profit of 3.17 trillion yen ($20.7 billion) for the nine months through December, five times that of a year earlier, boosted by a rise in the value of its stake in ChatGPT maker OpenAI....
For some reason I've got Churchill giving investment commentary in my head:
"...all Europe may be free and the life of the world may move forward into broad, sunlit uplands. But if we fail, then the whole world, including the United States, including all that we have known and cared for, will sink into the abyss of a new Dark Age, made more sinister, and perhaps more protracted, by the lights of perverted science...."
-Before the House of Commons
