SoftBank (SFTBY.US) doubles down on its AI bet! Pledges OpenAI shares to secure a 10 billions USD loan

According to reports from Zhixun Finance APP, SoftBank (SFTBY.US) has secured a $10 billion margin loan, using its shares in the US artificial intelligence (AI) giant OpenAI as collateral. This represents another major financing move as the company heavily bets on the AI sector.

In its latest financial report, SoftBank stated that on Wednesday the company reached a two-year loan agreement with Goldman Sachs, JPMorgan, Mizuho Securities USA LLC, Apollo Global Financing LLC, and Sumitomo Mitsui Banking Corporation. SoftBank added that these financial institutions are the lead arrangers for the loan, and the company plans to draw the funds this month.

According to disclosures, SoftBank will act as guarantor for the borrowing, with the funds to be used for general corporate purposes of the group and its Vision Fund II. SoftBank noted that under certain circumstances, the loan could require the borrower to add more cash collateral or repay the loan early, for instance, if the value of OpenAI preferred stock falls significantly.

This margin loan was secured after SoftBank previously obtained a record $40 billion bridge loan to invest in OpenAI. When this bridge loan entered a broader syndicated financing phase last month, it attracted a new group of 21 lending institutions.

SoftBank founder Masayoshi Son has fully committed the company’s investment capacity to the AI field, hoping for returns from long-term investments. However, this has also increased the company’s balance sheet leverage and exposed its investment portfolio to extreme volatility in AI trades.

SoftBank’s total investment in OpenAI is expected to approach around $65 billion before October. In addition to the aforementioned $40 billion bridge loan, SoftBank has also arranged a $20 billion margin financing secured by shares in chip designer Arm (ARM.US).

Although SoftBank has successfully raised new loans by using its OpenAI shares as collateral, lending institutions are becoming more cautious about accepting equity in unlisted companies as collateral. This is due to rising investor concerns over increased debt levels and uncertainties in future returns from the company’s largest investment projects. S&P Global Ratings analyst Makiko Yoshimura previously stated: “We consider Arm to have sound creditworthiness, but OpenAI is highly vulnerable. It is a startup facing significant risks from AI innovation and exceptionally fierce competition.”

A major variable in the debt risk SoftBank faces to fulfill its AI investment commitments lies with OpenAI itself. The timing and valuation of OpenAI’s initial public offering are now under scrutiny from capital markets and facing substantial challenges from competitors. On the one hand, reports indicate OpenAI is seeking an IPO valuation as high as $1 trillion, up from its previous $852 billion, but media sources reveal the listing may have been postponed until next year. On the other hand, Chinese competitors are offering AI models with similar performance at much lower costs, which could trigger a price war, compressing profit margins for leading developers such as OpenAI and impacting chip demand for computing power provision.

In addition to investing in OpenAI, SoftBank also plans to spend $5.4 billion to acquire the robotics business under ABB, and $3.1 billion to acquire digital infrastructure investment firm DigitalBridge.

As a result, the market is closely watching how SoftBank will secure funding for its continued investments in AI. This will be a major test for the company, especially as it faces $30 billion in matured debt in the second half of the year and becomes increasingly dependent on stock-collateralized loans. The AI industry is still in a high-investment phase, with capital expenditure for infrastructure such as data centers, power, and chips continuing to expand. For SoftBank, the future challenge lies in how to convert asset growth into stable cash flow.