SoftBank’s use of risky debt to fuel its tech powerhouse Vision Fund will leave it paying its Middle Eastern investors billions in crippling interest payments, analysts have warned.
“People do not understand what a mess the Vision Fund has become”, said Walter Price, portfolio manager at Allianz Technology Trust, pointing to around $40bn of the fund that is structured as debt.
The debt is held in the most part by Saudi Arabia’s Public Investment Fund and Abu Dhabi’s sovereign wealth fund.
Investors will be owed a 7pc debt coupon each year, meaning the fund must pay out roughly $2.2bn annually to these backers even when it is losing value.
“When returns were over 30pc, this was not a problem, and the overage accrued to Softbank,” said Mr Price. But if the fund does not make a profit or loses value, the funding will come out of the Vision Fund’s cash pile.
One source said that although SoftBank can currently use cash in the fund to pay the debt coupon, “over time the returns [profits from the fund] generate the cash to pay it”.
The Japanese firm, founded by billionaire Masayoshi Son, has been under mounting pressure after a botched float by WeWork, its biggest investment, forced the company to throw the office space start-up a $9.5bn lifeline.
SoftBank’s $100bn Vision Fund currently holds around $15bn in cash on its balance sheet, which would allow it to fulfill its coupon payments for the mid-term. But this cash is also earmarked for making follow on investments in start-ups backed by the fund.