SoftBank Credit Outlook Downgraded After Doubling Down on OpenAI with $30 Billion Investment

SoftBank credit outlook hit after betting $30bn more on OpenAI

S&P research finds OpenAI to be one of SoftBank's investments with the 'weakest' credit quality. OpenAI is making SoftBank's investment portfolio look bad, said financial analyst S&P Global, which lowered the Japanese investment firm's long-term issuer credit rating from 'BB+ stable' to 'negative'. SoftBank is making massive bets on OpenAI, after already investing $30bn into the world's largest private company last year. It is now is gearing to pour another $30bn into OpenAI over the course of the year, as the AI giant reportedly prepares to go public. With the additional investment, S&P figures that OpenAI will represent 30pc of SoftBank's investment assets - the same as its investments in Arm. And after the additional investment, SoftBank's investment portfolio will likely exceed $320bn, making it one of the largest in the world. However, S&P research found OpenAI to be one of SoftBank's investments with the "weakest" credit quality. The Japanese investment firm's investments in AI majorly involve start-ups and private companies, including SambaNova, Wayve and ABB Robotics, which S&P said exposes SoftBank to "significant AI innovation risk". These kinds of investments are weakening SoftBank's negotiating strength, it added. While, the additional investment in OpenAI could also knock down the company's loan-to-value (LTV) ratio. Last November, SoftBank sold off all of its shares in Nvidia, which came to around $5.2bn. At the time, company chief financial officer Yoshimitsu Goto reiterated their belief in OpenAI and Arm, commenting, "OpenAI is one of our key growth driver. "Together, Arm and OpenAI are powering SoftBank Group toward our goal of becoming the number one platform provider for the artificial superintelligence era," he said. An OpenAI initial public offering would be a well-needed boost for SoftBank's investment portfolio. While according to S&P, SoftBank will also need to sell assets and holdings to improve its LTV. "The negative outlook reflects our view that SoftBank Group's large follow-on investment in OpenAI means it will take longer than we had assumed for the company to restore the liquidity and quality of its investment assets," S&P said. "The company may take measures to ease its financial burden, such as selling assets, but we believe the timing and scale of those measures remain uncertain." Don't miss out on the knowledge you need to succeed. Sign up for the Daily Brief, Silicon Republic's digest of need-to-know sci-tech news.

SoftBank's $30 billion OpenAI bet spurs S&P credit outlook cut

The revised outlook follows SoftBank's decision last month to deepen its investment in the ChatGPT maker after already injecting more than $30 billion into OpenAI and funding other artificial intelligence ventures. S&P Global Inc. lowered its outlook for SoftBank Group Corp. to negative from stable, saying plans for an additional $30 billion investment in OpenAI may hurt the Japanese company's liquidity and the credit quality of its assets. The revised outlook follows SoftBank's decision last month to deepen its investment in the ChatGPT maker after already injecting more than $30 billion into OpenAI and funding other artificial intelligence ventures. S&P affirmed a "BB+" long-term issuer credit rating on the company, saying SoftBank could limit negative financial impact by selling assets. "The company's investments in AI, including OpenAI, mostly involve fledgling startups and private companies that we believe are exposed to significant AI innovation risk and fierce competition," the ratings agency said in a statement Tuesday. "We see OpenAI as one of its investments with the weakest credit quality." A representative of SoftBank praised the fact that S&P kept its long-term rating. "S&P gives due consideration to our proven record of managing our financial foundation under stress," the spokesperson said in an e-mail. Last year, SoftBank sold off assets including stakes in T-Mobile US Inc. and Nvidia Corp. to help finance founder Masayoshi Son's bets on AI. The additional investment in OpenAI will be deployed through three separate $10 billion tranches over the course of the year, lifting SoftBank's stake in the US startup to 13% from around 11% in December. OpenAI's share of SoftBank's portfolio will likely rise to a level comparable to that of UK-based chip designer Arm Holdings Plc, S&P said, noting the proportion of unlisted shares would soar above 50% from an estimated 42% in December. "The liquidity of SoftBank Group's investment portfolio will worsen because OpenAI now accounts for a bigger share of it," S&P said. The company has listed assets to sell to ease its financial burden, but the timing of such sales is uncertain, it said. "Pressure on the ratings will increase if SoftBank Group fails to take swift easing measures, such as selling holdings." What Bloomberg Intelligence Says SoftBank Group's negative outlook from S&P, rather than a CreditWatch placement, allows for time to defend its BB+ rating by selling assets to bring adjusted loan-to-value below 35%. An IPO of OpenAI would also be needed to boost portfolio liquidity. Still, execution could prove challenging as heightened geopolitical risk and a potential AI bubble are likely to pressure technology valuations, keeping LTV weak and potentially delaying OpenAI's already uncertain listing timeline. The additional bet on OpenAI may also hurt the Japanese company's loan-to-value ratio, S&P said. SoftBank has for years used the LTV ratio to demonstrate its ability to pay off debt. S&P said it will consider revising up the outlook if liquidity of SoftBank's portfolio improves through the initial public offerings of assets including OpenAI, at the same time that the company maintains investment portfolio quality and improves its LTV ratio through asset sales.