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SoftBank coming to grips with WeWork reality

SoftBank’s Masayoshi Son (Credit: Bloomberg)

SoftBank said it sees a loss of around $6.6 billion for their fiscal year ended March on the portion of its WeWork investment held outside the Vision Fund. The Japanese conglomerate has foolishly poured more than $13.5 billion into the co-working company.

  • Tip of the iceberg: SoftBank revised their initial estimate as it scrambles to calculate the hit to its bottom line from souring investments before it releases earnings on May 18th. The added loss from the WeWork rescue is pushing the total loss from investments on SoftBank’s books to more than $9.4 billion during the year ended March 31, versus the $7.5 billion SoftBank announced earlier this month, WSJ noted.
  • Worst investment of all time: This loss is on top of a previously announced fiscal-year investment loss of $16.6 billion at the Vision Fund. SoftBank decided to bail out WeWork last year, a move that appeared to throw good money at a failing business.
  • Heard on the Street: Redex Holdings told Reuters: “Every writedown takes WeWork’s carrying value closer to reality. Clearly the value is zero.”  
  • Nightmare scenario: The coronavirus pandemic obviously makes co-working less palatable even when social distancing guidelines abate. More ominously though, WeWork is on average locked in to 15 year leases, while its tenants have the option to sign on for monthly commitments (28% choose such an arrangement). The rest of the leases are one-year deals.
  • History repeating itself: WeWork competitor IWG (Regus) was the office darling of the dot-com era. When the downturn came, tenants dried up and the company had no way to pay for its ‘debt-like’ leases. It filed for Chapter 11 bankruptcy protection in the U.S. and retained its U.K. stock-market listing. Shares of IWG are currently down 46% year to date, and has a market capitalization of $2.07 billion.

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