Softbank raises $11 billion for AI bet via record bond

Tokyo. Softbank founder Masayoshi Son has underlined his bet on artificial intelligence (AI) with a bond that breaks several records. According to media reports, the Japanese technology investor took in around $11 billion, divided into dollar and euro tranches.

According to the financial news agency Bloomberg, Softbank is the largest issuer of junk bonds in the world. At the same time, Son had to offer investors the highest returns his group has ever paid, up to ten percent. The fresh money will at least partially flow into a capital increase at OpenAI, one of the world's leading AI providers.

He made it clear at the general meeting in June that the 69-year-old would risk a lot to achieve this: “We will follow ASI to the end without holding back.” What is meant is an artificial superintelligence that is said to be superior to humans in almost all areas.

The issue was therefore also seen as a barometer for confidence in the AI ​​boom as a whole. The reactions on the Tokyo Stock Exchange to the news from the US reflect two readings of Softbank's search for capital. In the first minutes of trading, Softbank shares shot up eleven percent. At the close of trading, however, it was trading at 6,352 yen, only 0.6 percent above the previous day's closing price.

The positive reading: The AI ​​boom continues to have supporters. The issue was oversubscribed more than three times. In addition, the market apparently trusts Son that his group has enough assets and access to the capital market to meet its high obligations. At the end of June, net debt was eleven trillion yen, the equivalent of around $61 billion.

The negative reading: Given his high AI bets, Son has to buy this trust dearly. The returns are said to have even been higher than those of lower-rated junk bonds. The rating agencies Standard & Poor’s and Fitch rate Softbank’s creditworthiness as BB+.

This is one level below the so-called investment grade, which characterizes relatively solid debtors. Junk bonds are considered more speculative. The credit assessors see an increased risk that the debtor will not be able to fully service his liabilities.

According to research by Bloomberg, Softbank divided the issue into three dollar and two euro tranches. In dollars, the group placed one billion with a term of 3.5 years and a return of 8.625 percent, 4.5 billion with a term of 5.5 years at 9.25 percent and another 4.5 billion with a term of 7.5 years at even 9.75 percent. There were also two euro tranches with a total value of one billion euros with terms of four and six years. For the longer term, the return was eight percent.

One reason for the high returns is Softbank's investment strategy. Berkshire Hathaway, the investment company long run by investor legend Warren Buffett, operates comparatively conservatively and currently has significantly more cash than debt.

Son, on the other hand, borrows against his share packages in order to finance larger investments on credit than would be possible on his own. In addition, the Softbank boss is currently betting everything on artificial intelligence.

Much of his fortune depends on the value of a single company: the British chip designer Arm. A collapse in chip and AI values, or the much-vaunted bursting of the AI ​​bubble, would therefore hit Softbank hard.

But Son countered the warnings in June by saying that the AI ​​revolution had only just begun: “To call an industry that is still in such an early stage a bubble is an insult.”