The SoftBank Group finds itself racing against time to meet its commitment of funding $22.5 billion in OpenAI by the end of the year through various funding options, such as the sale of certain investment holdings, and could also utilise its undrawn margin loans from its valuable ownership stake in chipmaker Arm Holdings.
The “all-in” stake in OpenAI is one of the largest bets to date by SoftBank CEO Masayoshi Son, who is racing to strengthen his company’s place in the field of artificial intelligence. Son has reportedly sold the entire holding of $5.8 billion in AI chip leader Nvidia to raise cash for the OpenAI investment, and also reduced his workforce. He sold $4.8 billion of its holding in T-Mobile US Inc.
IPO of PayPay Faces Hold-ups While Several Asset Sales are Ongoing
Son’s company is trying to take public the payments app operator PayPay. The initial public offering, which was expected this month, has been delayed because of the 43-day US government shutdown, which ended in November. The listing of PayPay, which may raise over 20 billion dollars, is now expected to occur in the first quarter of next year, as reported by both sources.
The Japanese conglomerate is also seeking to cash out some of its stakes in Didi Global, the parent of China’s leading ride-hailing app. Didi plans to list its shares in Hong Kong after being forced to delist from the US market in 2021 due to a regulatory crackdown, a source with direct knowledge of the matter told Bloomberg. Investment managers at SoftBank’s Vision Fund are being steered towards the OpenAI deal.
SoftBank’s frantic efforts to raise funds provide a telling perspective on the pressure even the world’s largest financial players experience in their efforts to secure the hundreds of billions of dollars needed for their AI-data centre ambitions. Correspondingly, SoftBank refused to comment on the matter.
SoftBank Offers Various Funding Opportunities
The remaining funds that OpenAI has not received yet are expected to be received by the end of the year 2025, based on the contract, according to sources. SoftBank has several financing options available, which it could consider tapping into, ranging from margin loans, cash on hand, equity holdings in publicly listed companies, and corporate bonds or bridge loans, according to sources.
Son has good reasons to utilise various funding instruments to meet these obligations. SoftBank had agreed to invest in OpenAI at a $300 billion valuation in April. But since then, the value of OpenAI has increased substantially, and the company is currently in talks with investors, including Amazon, and has tripled its value to around $900 billion, said a source. This will result in a huge gain for SoftBank, since it will make a considerable profit after the completion of the transaction.
One significant source of funds for SoftBank is its undrawn facilities of margin loans that have been borrowed against its holdings in Arm Holdings, a British semiconductor and software design company. Recently, the company has bolstered its margin loan capacity by $6.5 billion, increasing the undrawn facility to $11.5 billion. Arm’s stocks have tripled since its IPO, providing leeway for SoftBank to borrow more.
SoftBank Still Has Cash and T-Mobile Stake
SoftBank had cash of 4.2 trillion yen at the parental level as of September 30. The group retains approximately 4% of T-Mobile US, its second-biggest stake in the country’s wireless carrier, which is worth about $11 billion as of September 30, LSEG reports.
Although investing at a slower pace, it has been supporting startups related to AI technology, such as Sierra and Skild AI. OpenAI and SoftBank are both investors in Stargate, a $500 billion project aimed at creating data centres for AI training and inference that is, according to the executives, central to the US government’s efforts to stay competitive with China’s ambitions in the field of AI.
OpenAI Requires Funds Due to Rising Costs
SoftBank not only pledged to invest as much as $30 billion in OpenAI, in which $10 billion was to be received in April by the startup, with the balance due when the AI startup changes to a for-profit corporation by the end of this year, an ambitious plan which OpenAI successfully achieved in October.
The new investment is necessary to meet OpenAI’s growing expenditures on training and maintaining its AI models in the face of stiff competition from Alphabet’s Google. OpenAI CEO Sam Altman addressed the employees of the company to mark the beginning of the “code red” phase to enhance its ChatGPT because other product releases are postponed to counter the pace of Google’s Gemini.
Keep yourself updated with the recent business news from global markets by visiting Inspirepreneur Magazine.
