Sam Altman can wait for his IPO. Masayoshi Son? Not so much

Shuli Ren, Bloomberg

As SoftBank Group Corp. prepares a historic dollar bond sale, a surprise twist in founder Masayoshi Son’s biggest bet is giving traders pause.

In an interview with Fortune, OpenAI Chief Executive Officer Sam Altman said his startup won’t go public this year, despite having confidentially filed for a listing in June. Instead, it will focus on addressing safety-related concerns as fears that artificial intelligence could wipe out civilization reach a fever pitch.

While this gesture makes sense for OpenAI, the timing could hardly be worse for SoftBank. Senior executives are meeting with investors in New York this week, hoping to raise $10 billion to $20 billion. SoftBank’s shares tumbled 11% in Tokyo on Monday, while its credit default swaps widened to the highest level since March.

Proceeds from the debt sale will be used to repay a $40 billion bridge loan that SoftBank took out to finance this year’s follow-on investments in OpenAI. Son has committed $64.6 billion for a 13% stake in the company, whose latest funding round valued it at $852 billion.

OpenAI’s decision means that SoftBank can’t cash out of its investment anytime soon, a major red flag for credit investors. Its venture portfolio is highly concentrated, with Arm Holdings Plc and OpenAI accounting for roughly 75% of total asset value. More crucially, Son borrowed to acquire OpenAI shares.

By now, SoftBank’s recurring cash flow, such as dividend payments from its Japanese telecom unit, is dwarfed by its interest expenses. Altman may have the luxury of waiting for the perfect IPO window; SoftBank doesn’t. The clock is ticking for the Japanese conglomerate.

The funding pressure is mounting. SoftBank faces a shortfall of at least $20 billion, according to Bloomberg Intelligence estimates, even after securing an unusual $10 billion margin loan linked to OpenAI shares and raising $6.3 billion through a yen-denominated retail bond. The company’s cash needs would be even higher if Son ramps up data center investments in the US.

Meanwhile, the lucrative carry trade that the Japanese billionaire has relied on for decades is no longer working in his favor. About half of the company’s interest-bearing debt is in yen, while almost all of its equity holdings are dollar-denominated assets that have surged in value. But with Japan’s 10-year sovereign yield rising to around 3% and its central bank poised to hike this week, Son can no longer count on an abundant supply of cheap money at home.

Anticipating a supply glut, traders are betting that SoftBank will have to offer generous terms to ease its liquidity crunch. Its existing dollar bonds already trade more like a lower B-rated corporate than the BB+ assigned by Fitch Ratings.

All of this raises questions about Son’s unwavering devotion to OpenAI. His first $34.6 billion bet has rewarded him handsomely, with most of the investment made at a $260 billion valuation. Why did he decide to put in another $30 billion this year, at a far richer valuation, especially stretching his company’s balance sheet? The strategy is also in stark contrast to Nvidia Corp., which has decided to spread its bets by investing in several competing large language model creators.

But credit investors have less appetite for such conviction. They’re focusing on concentration risks and funding gaps, and demanding that Son pay a premium for his confidence.

[Abridged]

Courtesy Bloomberg/Shuli Ren