SoftBank Slides to 10-Month Low After Unveiling WeWork Bailout

(Bloomberg) -- SoftBank Group Corp. slid to its lowest since January after unveiling a $9.5 billion bailout for WeWork, as investors pondered the upshot of acquiring 80% of the debt-riddled American shared-office startup.

The stock slipped as much as 3.2% to 4,057 yen in Thursday morning trade, extending a 2.5% decline during the previous session. On Wednesday, WeWork announced it had secured a rescue package from SoftBank, capping one of the more dramatic business debacles in recent memory.

SoftBank’s bond spreads widened to a record high, while its bond prices dropped to 98.3 on Wednesday, the lowest level since the debt was issued in September. Its credit default swaps also widened to 252.7 on Wednesday, the highest since mid-January, according to CMA data.

The Japanese conglomerate is due to report results Nov. 6. WeWork’s shrunken valuation -- now roughly $8 billion from an eye-popping $47 billion at its peak -- and declines in shares of portfolio companies such as Uber Technologies Inc. may force SoftBank to book as much as a 500 billion yen ($4.6 billion) valuation loss, Mizuho Securities analyst Yusuke Hori wrote in a report. But the analyst maintained his buy rating on the company, saying its shares are cheap on a sum-of-parts calculus that includes SoftBank’s stake in Chinese e-commerce giant Alibaba Group Holding Ltd.

The deal with SoftBank, which includes $5 billion in new financing and an acceleration of a $1.5 billion existing commitment, grants a reprieve to WeWork parent We Co., which was on track to run out of money as soon as next month. The capital infusion doesn’t give SoftBank a majority of voting rights and WeWork will be treated as an associate, not a subsidiary. That might allow the Japanese company to wield influence at WeWork without having to show all of its liabilities on the balance sheet.

The deal hasn’t closed however. SoftBank will file in the coming weeks for approval from the Committee on Foreign Investment in the U.S., according to a person familiar with the plans. SoftBank, which is based in Tokyo but invests globally, has run into issues with the agency in the past and a review could be a hurdle to closing the deal.

SoftBank’s founder, Masayoshi Son, said in Wednesday’s statement he was doubling down on the American outfit because he believed “growth challenges” were normal for any would-be disruptor. The investor certainly appeared unconcerned -- Son, an avid golfer, was on the links with Tiger Woods and Zozo Inc.’s billionaire founder Yusaku Maezawa at a celebrity tournament when news of the bailout dropped.

--With assistance from Takahiko Hyuga and Ayai Tomisawa.

To contact the reporter on this story: Pavel Alpeyev in Tokyo at palpeyev@bloomberg.net

To contact the editors responsible for this story: Edwin Chan at echan273@bloomberg.net, ;Andrew Monahan at amonahan@bloomberg.net, Colum Murphy

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