SoftBank Group has initiated a bond offering worth approximately $11bn, split between $10bn in senior unsecured dollar-denominated notes and €1bn in euro-denominated notes, according to term sheets disclosed by Reuters and Bloomberg on Monday.

The offering is structured across five separate tranches. Dollar notes mature in three and a half, five and a half, and seven and a half years, while euro notes mature in four and six years. Pricing is scheduled for 24 September, with settlement expected on 29 September. Citigroup and JPMorgan are managing the sale.

Funding the OpenAI investment

The purpose of this capital raise becomes clear through SoftBank's public filings. On 27 February, the company committed $30bn to OpenAI through Vision Fund 2, valuing the AI company at $730bn on a pre-money basis. This investment is being paid in three equal tranches due on 1 April, 1 July, and 1 October.

SoftBank indicated at the time that bridge loans would initially finance the investment, with permanent financing to follow through existing assets and other measures. The current bond sale represents that permanent replacement financing.

On 9 September, SoftBank disclosed that it had prepaid $25.9bn of the $30bn drawn from a $40bn facility arranged in March, leaving approximately $4.1bn still outstanding. This repayment reframes the new $11bn raise as refinancing activity rather than a fresh capital commitment.

Pricing pressures and market comparisons

Market pricing will be a critical indicator of investor sentiment. SoftBank's April notes were priced at 7.625% for three and a half years and 8.250% for five and a half years. The company's 2031 dollar bond was yielding approximately 8.2% in September, compared to 6.7% in January. Both S&P and Fitch rate SoftBank at BB+, the highest tier within speculative-grade territory.

A striking divergence exists between offshore and domestic markets. SoftBank's record retail bond offering in Japan, priced on 4 September at 4.75%, trades roughly 350 basis points lower than what offshore institutional investors are demanding for the same credit quality.

Balance sheet expansion and asset positioning

SoftBank's balance sheet continues to expand through multiple channels. The group expanded a credit facility to $6.5bn on 18 September, divested its entire $5.8bn Nvidia stake, and sold approximately $9.2bn in T-Mobile shares. Additionally, SoftBank has pledged Arm as collateral against a $25bn margin loan.

An important distinction: Arm remains unsold, a nuance that often gets overlooked in market commentary. SoftBank calculates its loan-to-value ratio at 13% as of 30 June using its own methodology, though S&P assessed the same metric at 33%.

SoftBank's cumulative investment in OpenAI now totals $64.6bn for a stake of approximately 13%, all acquired at the $730bn pre-money valuation. OpenAI is currently in discussions regarding a private funding round at a substantially higher valuation, with final terms expected on 24 September.

Source: The Next Web