SoftBank Group Corp’s financial strains escalated on Wednesday as it agreed to spend more than $10 billion to take over office-space sharing startup WeWork, knocking the Japanese tech conglomerate’s already weakened shares.
SoftBank’s total investment in the money-losing firm will rise to more than $13 billion to give it an 80 percent stake in, but not control of, WeWork, now valued at $8 billion.
Shares in SoftBank Group fell 2.5 percent on Wednesday and have tumbled almost 30 percent from their July peak as investor skepticism grows over the path to profitability for cash-burning investments like WeWork and Uber.
The WeWork deal is structured to avoid SoftBank having to consolidate it or take on onerous lease obligations.
Although SoftBank has an army of retail investors in yield-strapped Japan willing to buy its junk bonds, it already holds about 5 trillion yen ($46 billion) of net debt on its balance sheet - more than half its 9 trillion yen market capitalization.
The cost of default protection on SoftBank Group has risen, with the 5-year credit default swap jumping 17.7 points in a week to the highest level since January.
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