🚨 Alert #7463 Wed Oct-14 17:10:30

SoftBank junk bond sale raises stakes for CEOTOKYO -- SoftBank's promise to pay its highest-ever yields in a record $11 billion junk-bond offering highlights the pressure on CEO Masayoshi Son to secure returns on his all-in bet on AI amid concerns about possible overheating in the market. The SoftBank debt issuance last month added to a sharp surge in corporate borrowing this year, including major bond sales from Amazon.com, Alphabet and Tencent. The scale of Son's investments, which include backing totaling $64.6 billion for ChatGPT maker OpenAI, in particular, has made the technology-and-investing conglomerate a bellwether for AI sentiment. Those fresh investments are now coming under sharper scrutiny by analysts and investors amid worries about the degree of concentration in SoftBank's portfolio and whether a payoff from the expenditures by AI companies will come soon enough. SoftBank previously sold shares in Nvidia and T-Mobile US to fund its investments, but it is now borrowing at record yields of up to 9.75 percent in order to retain assets that it believes will appreciate, a senior SoftBank executive told Reuters. "We've borrowed money in large part because we don't want to sell assets that we believe will keep rising in value," said Alex Clavel, CEO of SoftBank Investment Advisers, which manages the Vision Funds. Sam Altman's OpenAI is the core investment in the latest iteration of Son's investment strategy, following lucrative bets on Chinese tech giant Alibaba and chip designer Arm "Given OpenAI's appreciation to date, 9.75 percent is still very reasonable," Clavel said. Arm's valuation has grown fivefold since it floated in 2023 and further listings from SoftBank's private AI portfolio would clarify their value and more easily allow the assets to be monetized for additional investment activity. Altman has said OpenAI will not go public this year, citing safety concerns about AI. It also faces competition from rival Anthropic and hyperscalers, as well as low-cost Chinese labs. SoftBank was previously "betting on a bunch of numbers at the roulette table. Now it's red or black; either lose everything or gain everything," MST Financial analyst David Gibson said. Increased scrutiny of AI-related fundraising SoftBank will pay its highest-ever coupon of 9.75 percent on a bond issued last month that matures in 2034. That return compares with Alphabet offering 5.2 percent for a bond issued in August that matures in 2033. SoftBank's shares surged to a record high of 8,632 yen in June, though they have fallen 38 percent since then, while its credit default swap spreads jumped 24 percent over the same period. SoftBank's higher yields reflect investor perceptions of their risk and concentration in large positions, analysts say. "The bets are much bigger than we've ever seen," said Amir Anvarzadeh of Asymmetric Advisors, who recommends shorting the stock. James Athey, a fixed-income portfolio manager at Marlborough, said the fund was not allocating to high-yield bonds at this stage of the credit cycle, given current tight spread levels. "SoftBank is so aggressive, so concentrated and so all-in; I don't think we'd be looking there first anyway," he said. Clavel, however, says SoftBank's OpenAI backing reflects their deep business ties. "We see OpenAI as a partner, building a relationship that can deliver strategic value as well as financial returns," he said. reuters