SoftBank Group Corp (SFTBY.US) has obtained a $10 billion margin loan secured by its shares in the U.S. artificial intelligence giant OpenAI, marking another significant financing move in its aggressive push into the AI sector. The company disclosed in its latest financial report that it finalized a two-year loan agreement on Wednesday with Goldman Sachs, JPMorgan Chase, Mizuho Securities USA LLC, Apollo Global Financing LLC, and Sumitomo Mitsui Banking Corporation. SoftBank noted that these financial institutions serve as the lead arrangers for the loan, with plans to draw down the funds this month. According to the disclosure, SoftBank will act as the guarantor for the loan, which will be used for general corporate purposes of the group and its Vision Fund 2. The company stated that under certain circumstances, the loan requires the borrower to provide additional cash collateral or repay the loan early, such as in the event of a significant decline in the value of OpenAI's preferred shares.
This margin loan follows SoftBank's previous record-breaking $40 billion bridge loan used to invest in OpenAI. That bridge loan, when syndicated to a broader group of lenders last month, attracted participation from 21 new financial institutions. SoftBank founder Masayoshi Son has fully committed the company's investment resources to AI, aiming for long-term returns. However, this strategy has also increased the company's balance sheet leverage and exposed its portfolio to the volatility of AI transactions. SoftBank's total investment in OpenAI is expected to approach nearly $65 billion by October. Beyond the aforementioned $40 billion bridge loan, SoftBank has also arranged a $20 billion margin financing facility secured by shares of chip design company Arm Holdings (ARM.US).
While SoftBank successfully secured new loans backed by its OpenAI shares, lenders are becoming more cautious about accepting equity in unlisted companies as collateral, amid growing concerns over rising debt levels and uncertainties surrounding the future returns of the company's largest investment projects. Makiko Yoshimura, an analyst at S&P Global Ratings, previously stated, "We believe Arm has sound creditworthiness, but OpenAI is very vulnerable. It is a startup facing significant AI innovation risks and exceptionally intense competition." A major variable in SoftBank's debt risk tied to its AI investment commitments lies with OpenAI itself. The timing and valuation of its initial public offering are now facing scrutiny from capital markets and substantive challenges from competitors. On one hand, reports indicate that OpenAI is seeking an IPO valuation of up to $1 trillion, a further jump from its previous $852 billion valuation, but media reports suggest its listing plans may be delayed until next year. On the other hand, competitors from China are offering AI models with comparable performance at lower costs, potentially triggering a price war that could compress profit margins for frontier developers like OpenAI and impact demand for the chips powering their computing needs.
In addition to its investment in OpenAI, SoftBank is also planning to spend $5.4 billion to acquire ABB's robotics business and $3.1 billion to purchase DigitalBridge, a digital infrastructure investment company. As a result, the market is closely watching how SoftBank will fund its ongoing AI investments, which will represent a major test for the company, especially as it faces $30 billion in debt maturing in the second half of the year and increasingly relies on stock-backed loans. The AI industry remains in a high-spending phase, with capital expenditures on data centers, electricity, chips, and other infrastructure continuing to expand. For SoftBank, the future challenge lies in converting asset value growth into stable cash flow.
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