The Zhitong Finance App learned that SoftBank (SFTBY.US) has obtained a $10 billion security deposit loan secured by its shares in the US artificial intelligence (AI) giant OpenAI. This is another important financing move in the process of the company betting heavily on the AI field.
SoftBank said in its latest financial report that the company reached an agreement with Goldman Sachs, J.P. Morgan Chase, Mizuho Securities America LLC, Apollo Global Finance LLC, and Sumitomo Mitsui Bank on Wednesday. SoftBank added that the financial institution mentioned above is the lead arranger for this loan, and the company plans to withdraw the funds this month.
According to the disclosed information, SoftBank will act as the guarantor of this loan, and the loan funds will be used for general corporate purposes of the Group and Phase 2 of its Vision Fund. SoftBank said that in some cases, the loan requires the borrower to add cash collateral or early repayment of the loan, such as when the value of OpenAI preferred shares falls sharply.
The margin loan was reached after SoftBank previously obtained a record $40 billion bridge loan to invest in OpenAI. When the bridge loan entered the broader syndicated financing phase last month, it attracted the participation of a new group of 21 new lenders.
SoftBank founder Sun Zhengyi has fully invested the company's investment in the AI field, hoping to reap rewards through long-term investment. But at the same time, it also raised the company's balance sheet leverage level, and exposed its portfolio to sharp fluctuations in AI trading.
SoftBank's total investment in OpenAI is expected to reach nearly $65 billion by October. In addition to the $40 billion bridge loan mentioned above, SoftBank also arranged a $20 billion guarantee financing backed by shares in the chip design company Arm (ARM.US).
Although SoftBank successfully used its OpenAI shares as collateral to finance new loans, lenders are becoming more cautious about using shares in unlisted companies as collateral as investors increasingly worry about rising debt levels and uncertainty about the future returns of the company's largest investment projects. Makiko Yoshimura, an analyst at S&P Global Ratings, said earlier: “We think Arm has a strong credit profile, but OpenAI is very vulnerable. It's a startup facing significant AI innovation risks and unusually intense competition.”
One major variable in the debt risk SoftBank faces in order to deliver on its AI investment promises is OpenAI itself. The timing and valuation of its initial public offering is now facing torture from capital markets and substantial challenges from competitors. On the one hand, there are reports that OpenAI is seeking an IPO valuation of up to 1 trillion US dollars, which is another jump from the previous valuation of 852 billion US dollars, but the media revealed that its listing plans may have been postponed until next year. On the other hand, competitors from China are using lower costs to provide AI models with similar performance, which may trigger a price war, thereby reducing the profit margins of cutting-edge developers such as OpenAI, and impacting the demand for chips that provide them with computing power.
In addition to investing in OpenAI, SoftBank also plans to invest 5.4 billion US dollars to acquire ABB's robotics business and 3.1 billion US dollars to acquire digital infrastructure investment company DigitalBridge.
As a result, the market is closely watching how SoftBank will fund its continued investment in AI, which will be a major test for the company, especially as the company has $30 billion of debt due in the second half of the year and is increasingly dependent on stock mortgages. The AI industry is still in a rapid investment stage, and capital expenditure on infrastructure such as data centers, electricity, and chips continues to expand. For SoftBank, the future challenge is how to turn asset value growth into stable cash flow.