SoftBank Plans Massive $40B Loan for OpenAI Stake
Synopsis
SoftBank is looking for a $40 billion loan to maintain its investment in its stake in OpenAI, making it the single biggest dollar loan in its history. It now owns 11% of OpenAI after…
SoftBank is looking for a $40 billion loan to maintain its investment in its stake in OpenAI, making it the single biggest dollar loan in its history. It now owns 11% of OpenAI after investing more than $41 billion, financing that by selling off assets such as its Nvidia stake and incurring further debt. The loan, with a term of 12 months, is being arranged by a syndicate of four banks including JPMorgan.
Key Highlights
- SoftBank seeks to borrow as much as $40 billion, its largest dollar loan ever
- Among its four banks arranging the 12-month loan is JPMorgan
- SoftBank is already about 11% shareholder of OpenAI after investing over $41 billion since last year
- It sold its entire $5.8 billion stake in Nvidia to pay for this as well as about $4.8 billion worth of T-Mobile shares
SoftBank Is Seeking a $40 Billion Loan, All to Back OpenAI
SoftBank is seeking to borrow as much as $40 billion from banks. The funds would be for covering its investment in OpenAI. If completed, it would mark the biggest dollar loan in SoftBank's history. Four banks are arranging the deal, including JPMorgan and the loan would last for roughly 12 months before it has to be repaid.
OpenAI is the largest bet of SoftBank boss Masayoshi Son’s career. He has stated publicly that a fundamental change is underway in the world, AI, the biggest of which SoftBank needs to be at the thick of.
SoftBank Already Owns 11% in OpenAI
This is also not a new relationship. At the end of last year, SoftBank sealed a $41 billion investment in OpenAI in one of the largest private transactions ever. It committed $7.5 billion on the front end, $22.5 billion more later and the rest from co-investors. That works out to about 11 per cent of OpenAI for SoftBank, putting it the second-largest shareholder behind only Microsoft, which controls roughly 27 per cent.
OpenAI is now preparing a new funding round that would value the company at $840 billion. SoftBank, Nvidia and Amazon are making big bets. That new $40 billion loan would allow SoftBank to participate in these rounds without having to sell everything else it owns.
To Pay for All This, SoftBank Has Been Selling Off Assets
SoftBank cashed out of its position in Nvidia, which is worth $5.8 billion, and poured it directly into OpenAI. It also divested about $4.8 billion in T-Mobile shares. On top of that, it secured an $11.5 billion loan using its shares in the chip company Arm Holdings as collateral.
The company has been slashing nearly everything else, too. Its Vision Fund, which once poured money into dozens of tech startups each year, has slowed significantly. Staff cuts followed. The entire focus of the business has changed to a single company, OpenAI. Son has said this is his biggest bet ever, and he shows no signs of easing off.
Credit Agencies Are Getting Worried
Not everyone agrees with SoftBank’s level of borrowing. This week, S&P cut the outlook for SoftBank’s credit rating. The large investment into OpenAI is putting strain on the company’s financials and reducing the quality of its overall asset base, the agency said.
The concern is straightforward. SoftBank is assuming enormous amounts of debt on the presumption that OpenAI will eventually go public in a huge way. If that listing takes longer than anticipated, or if OpenAI’s valuation plummets before it happens, SoftBank could be in big trouble. In the market too, there are more general fears as to whether the AI boom has run away with itself, and whether businesses like OpenAI ought ever to deserve the vast valuations being put on them at present.
FAQs
1.Why Is SoftBank Borrowing $40 Billion?
To maintain financing for its investment in OpenAI, the company that makes ChatGPT.
2. Which banks are looking to finance the loans?
JPMorgan is among four banks arranging for the deal.
3. What portion of OpenAI does SoftBank currently own?
Around 11 per cent, the second largest shareholder after Microsoft.
4. What did SoftBank sell off to finance all that?
Its entire $5.8 billion Nvidia position and about $4.8 billion in T-Mobile stock.
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