(Bloomberg) — SoftBank Group Corp. is seeking a $10 billion loan secured by its shares in US artificial intelligence giant OpenAI, people familiar with the matter said, as it takes on more debt for its push into AI.
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The two-year margin loan would carry an option for the Japanese conglomerate to extend the borrowing by an additional year, according to the people, who asked not to be identified discussing private matters. A margin loan is an arrangement in which companies use their assets such as stock for collateral to borrow against.
The cost of insuring SoftBank’s debt against credit risks jumped after the news, with credit-default swaps rising about 10 basis points, traders said. That leaves them at about 360 basis points, pushing them toward a one-year high reached in late March at 376 basis points, according to prices from data provider CMA.
SoftBank has been piling on debt as its founder Masayoshi Son seeks to position himself as a linchpin in the global AI boom, with large-scale investments into ChatGPT maker OpenAI. SoftBank recently committed an additional $30 billion to the US firm after having previously put in more than that same amount. Last month, SoftBank signed a $40 billion loan — its largest-ever lending facility solely denominated in dollars — in part for its most recent follow-on investment.
In March, S&P Global Ratings lowered the group’s credit outlook to negative from stable, citing the danger that its investments in OpenAI may hurt the Japanese company’s liquidity and the credit quality of its assets.
There have been recent signs that creditors are keeping money flowing to SoftBank for its OpenAI investments, so long as the price is right.
The Japanese group raised $3.6 billion last week through a multi-part bond deal, with part of the proceeds earmarked for repaying bridge loans tied to its investments in OpenAI. The offering included a 10-year dollar tranche that carried a 8.5% coupon, the highest ever for the firm on such a security.
At the same time, equity traders have been signaling optimism over the investments into OpenAI, pushing up SoftBank’s shares. The group’s stock has climbed about 31.5% this year, outpacing a 8.3% gain for the benchmark Topix index.
For the current margin loan that SoftBank is seeking, no decisions have been taken and details could change. Discussions have included a potential initial interest margin of about 425 basis points over the benchmark Secured Overnight Financing Rate, people familiar with the matter said. That would work out to about 7.88% at the latest SOFR levels.
A SoftBank representative declined to comment.
SoftBank is no stranger to margin loans. As of November, it had expanded a margin loan using its shares in Arm Holdings Plc to $20 billion.
SoftBank also holds billions of dollars of stakes in companies including T-Mobile US, Intel Corp. as well as ByteDance Ltd. that it could sell down to shore up its finances.
–With assistance from Min Jeong Lee, Takahiko Hyuga and Hideyuki Sano.
(Adds CDS and share moves)
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