Beijing time on December 16th it was reported that Mr Sun had been a big client of Japan’s big bankers, but now they have doubts about the tycoon. After Sun’s high-cost rescue of weWork, a sharing office start-up, and a series of other setbacks, executives at Japan’s two largest banking groups privately said they were not as comfortable with the billionaire’s multibillion-dollar SoftBank Vision fund.
One executive said in mid-November that his company wanted to see a convincing WeWork turnaround plan before lending more money to SoftBank. Another bank, which competes with it, said at about the same time that it was cautious about SoftBank and was sceptical about Mr Sun’s strategy of investing huge sums of money in high-value startups. Both banks are involved in SoftBank’s roughly $2.7 billion loan program.
While neither of the bankers, who spoke on condition of anonymity, has hinted at a significant reduction in ties to SoftBank, their misgivings highlight a changing perception of Mr Sun, even among his most reliable supporters.
Japan’s big banks, which have been funding Sun’s companies for nearly 40 years, have now lent at least $15 billion to SoftBank and Vision. They also established extensive investment banking relationships with Sun, advised Himon on deals, and helped SoftBank raise more money from the Japanese corporate bond market than any other issuer. Since 2015, SoftBank has paid more than $1.9 billion to the world’s major banks, much of it to Japanese banks, according to Freeman and Co.
If the industry tightens its capital, or requires a greater say in Sun’s financial decisions, it could complicate the tycoon’s plans, which are now trying to promote the debt-laden empire as a global leader in areas such as artificial intelligence and health care. SoftBank could face a crucial test in the coming weeks as it tries to hammer out new financing terms of up to Y300bn ($2.7bn).
Kazumi Tanaka, an analyst at DZH Financial Research, said: “The Bank of Japan is lending in part because it values Mr Sun’s managerial and other capabilities. The WeWork issue has weakened one of the elements that persuaded them to support Sun’s justice. “
The 62-year-old telecoms tycoon and technology tycoon is Japan’s most prominent businessman, while SoftBank is by far the biggest investment banking fee payer. With interest rates near zero in Japan and credit markets faltering, few companies can achieve the financial clout of SoftBank.
But for the past two decades, SoftBank has been dealing with banks with its luc-teratose business, which is dominated by its luc-fixation. Today, the company is in fact a large venture capital firm, taking on unprecedented risks, making its financial position even more unpredictable.
Mr Sun’s recent string of setbacks has tested the bank’s patience. The collapse in valuations of SoftBank holdings, including WeWork and Uber, led SoftBank to report an operating loss of nearly $6.5 billion in the second quarter, the first such situation in 14 years.
The veteran Japanese banker, who wants to see WeWork’s turnaround plan, said any extra loans to SoftBank would bring his company close to the internal cap on a single borrower’s exposure. That doesn’t necessarily stop it from expanding credit lines, he said, because banks can temporarily exceed those limits. But in the long run, banks may not be able to lend more to SoftBank.
Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial Group are the japanese banks that lend the most to SoftBank. According to march 31, if they fund the entire deal, they will lend more than $15 billion to SoftBank.
Mitsubishi UFJ and Sumitomo Mitsui declined to comment. Mizuho, which made its first loan to Sun about 37 years ago, is SoftBank’s largest lender, with a $5.5 billion outstanding loan balance as of March. SoftBank also declined to comment.
Although Mr Sun admitted to making a mistake, he gave an impassioned defence of his approach in last month’s SoftBank earnings report. He prevented further blood loss at WeWork by ousting controversial founder Adam Neumann and appointing the trusted Marcelo Claure as executive chairman. Crowley launched a comprehensive cost-reduction plan, outlined a five-year recovery plan and brought in new executives, including Maurice Levy, the former ceo of the Lion Group.
But the lending market remains open to Mr Sun, who is said to be arranging a $1.75bn line of credit as part of the WeWork rescue package. SoftBank is listed as a borrower and WeWork is a joint borrower, people familiar with the matter said. It is unclear whether Japanese banks will be involved in Goldman’s debt deal.
Given the long-term ties, SoftBank could end up irresistible to the Bank of Japan. In 1982, at the age of 24, Sun justice received his first loan from Mizuho and proved himself to be a bold and reliable client for nearly 40 years. In October, just as WeWork’s troubles made headlines around the world, SoftBank’s headquarters in Tokyo was filled with flower baskets from the Japanese investment bank to congratulate Sun’s baseball team on winning the National League.
There is also a lack of profitable alternative lenders in Asia’s second-largest economy. Shin Tamura, an analyst at Bloomberg Intelligence, said the company’s lower credit rating meant banks would charge higher interest rates. SoftBank’s credit is rated BB-plus by Standard and Poor’s, one level below the investment grade. Toyota, Japan’s other big borrower, has a AA-, seven grades higher than SoftBank.
As Mr Sun tries to negotiate new loans, lenders’ desire for interest rates and lucrative investment banking may be an important underlying factor. SoftBank met with Japan’s three biggest banks on November 26 to discuss the issues, people familiar with the matter said. Executives outlined their plans for WeWork at the meeting, but the terms of the loan were not discussed, people familiar with the matter said.
It is unclear whether the exchange will ease the bank’s concerns about WeWork.
Mr Sun and his Japanese bankers could end up tied up with SoftBank’s massive junk bonds. SoftBank has $131 billion in long-term debt, more than any other listed non-financial company except AT ?T, according to data compiled bymedia. Any sign of a capital squeeze would shake confidence in SoftBank’s main lenders.
The Bank of Japan “may be getting more worried, but they still have to provide more support,” said Michiaki Tanaka, a former investment banker who now teaches at the University’s business school.
If banks are less forgiving, Mr Sun could turn to other sources of financing, including using SoftBank’s $39bn in cash and equivalents. The company could also issue more bonds, even though they are interested at higher interest rates than bank loan rates. Mr Sun could then use one of his most successful investments: SoftBank’s stake in Alibaba, which was worth $129bn as of Friday.
But while a cooling relationship with domestic banks could have a wide-ranging impact on Mr Sun, especially as he tries to raise a second $100bn Vision fund to keep the deal going. Yasuhide Yajima, chief economist at the NLI Institute, said any sign of a dampening confidence among SoftBank supporters could make it more difficult for the company to raise capital elsewhere.
“If banks tighten up, it will make it more difficult for SoftBank, ” says Mr Yajima. (The widower)