SoftBank's $9.5 billion bailout of WeWork hits a hurdle as Japanese banks are worried about funding it

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  • SoftBank’s $US9.5 billion bailout of WeWork has hit a hurdle.
  • The Japanese tech conglomerate wants to partly finance the rescue deal by borrowing $US3 billion from Japan’s three biggest banks, but the trio have reached their internal lending limits to the company, according to Reuters.
  • Mizuho, Mitsubishi UFJ, and Sumitomo Mitsui are exploring ways to make the loans while mitigating their exposure, including the use of SoftBank’s 26% stake in Alibaba as collateral, two sources told Reuters.
  • View Business Insider’s homepage for more stories.

SoftBank’s $US9.5 billion bailout of WeWork has hit a hurdle. The Japanese tech conglomerate wants to partly finance the rescue deal by borrowing $US3 billion from Japan’s three biggest banks, but the trio have reached their internal lending limits to the company, according to Reuters.

Mizuho, Mitsubishi UFJ, and Sumitomo Mitsui are exploring ways to make the loans while mitigating their exposure, two sources told Reuters. One option could be to use SoftBank’s 26% stake in Chinese e-commerce giant Alibaba – worth close to $US150 billion – as collateral, they said.

“SoftBank is an important client so we want to do everything we can to help, but we have to consider our credit risk,” one senior bank executive told Reuters.

If the trio of banks lend the full $US3 billion to SoftBank, their total loans to the firm and its $US100 billion Vision Fund would exceed $US15 billion, according to The Japan Times.

One executive told The Japan Times last month that his bank wanted to see a compelling turnaround plan for WeWork before it opens its wallet to SoftBank again. A rival said his bank was being cautious and had grown sceptical of SoftBank CEO Masayoshi Son’s big bets on high-valued startups.

The stalled talks with domestic banks led SoftBank to secure a $US1.75 billion line of credit from Goldman Sachs, Reuters reported.

WeWork’s rescue package – which includes $US5 billion of debt financing, the acceleration of a previously agreed $US1.5 billion equity investment, and a $US3 billion tender offer – isn’t in immediate danger, given SoftBank had $US19 billion in cash at the end of September.

However, SoftBank’s biggest lenders are wary for a reason. The firm reported a $US6.4 billion net loss – its first quarterly loss in 14 years – in the three months to end-September, after it wrote down the value of its investments in WeWork and Uber.

SoftBank agreed to bail out WeWork in October in a bid to salvage its $US10 billion-plus investment in the company.

WeWork scrapped its IPO after investors balked at its losses and the behaviour of cofounder and then-CEO Adam Neumann. It faced the prospect of going public at a $US20 billion valuation – a fraction of its private valuation of $US47 billion in January – and failing to raise the $US3 billion it needed to unlock $US6 billion in bank financing.

Running short of cash, it accepted SoftBank’s rescue deal, which is set to raise its biggest backer’s stake in the business to 80%.

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