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SoftBank pushes for pay-to-play loans from lead IPO underwriters

Vision Fund operator uses its lucrative business as a carrot to raise financing

Banks eager to underwrite SoftBank Corp.'s blockbuster IPO are being asked to extend loans to the SoftBank Vision Fund, with stakes in the fund's targets as collateral.
Banks eager to underwrite SoftBank Corp.'s blockbuster IPO are being asked to extend loans to the SoftBank Vision Fund, with stakes in the fund's targets as collateral.

TOKYO -- SoftBank Group has asked for loans from banks competing to manage the massive initial public offering of its mobile communications unit, flexing its position as a fount of income for financiers the world over in an unusually bold request.

As collateral for the loans, mainly to its nearly $100 billion Saudi-backed Vision Fund, the Japanese conglomerate is offering stakes in the fund's investment targets, which include major tech companies like China's Alibaba Group Holding and American ride-hailing giant Uber Technologies. A SoftBank executive described the request as "a test to gauge how much lenders will contribute to us."

The Dec. 19 listing of telecom unit SoftBank Corp. on the Tokyo Stock Exchange is expected to raise just over 2.6 trillion yen ($23 billion), rivaling Alibaba's largest-ever $25 billion IPO. Banks are clamoring for a piece of the action in hopes of forging close ties with the tech and investment group. Underwriters tend to be chosen based on factors like their investor networks, but SoftBank knew it could set its own terms.

The demand bewildered some Wall Street investment banks, with one executive at a U.S.-based lender describing it as completely unheard of.

The response has been split. "All we can do is stay in the game," said a person at the Tokyo office of one overseas-based bank, which shrugged off internal objections and decided to accept SoftBank's terms for the sake of securing future business.

Another international bank shot down the idea, with its risk-management division saying it could not be sure of the value of the collateral SoftBank was offering because it included shares in unlisted companies.

The banks serving as global coordinators for the IPO, which manage the underwriters and orchestrate the whole process, are Japan's Nomura Holdings, Mizuho Financial Group and Sumitomo Mitsui Financial Group, the U.S.'s Goldman Sachs and JPMorgan Chase and Germany's Deutsche Bank. All six have committed to extending loans to SoftBank, totaling about 1 trillion yen collectively.

Morgan Stanley appears to have decided to pass on offering a loan when concerns were raised about falling short of risk-management standards after the decision went all the way to CEO James Gorman. Bank of America, already a major lender to SoftBank, is likewise seen to have declined.

The reason top financial players are so concerned with SoftBank is that the group represents a veritable money tree for them, a source of interest payments on loans as well as fees for underwriting bond floats and for advising on mergers and acquisitions. It paid investment banks an annual average of $317 million in fees over the past several years, more than any other company in the world, according to former Thomson Reuters research arm Refinitiv.

A glance at the Fukuoka Yahuoku Dome -- the stadium for the Fukuoka SoftBank Hawks baseball team -- shows how willing banks are to march to the tech group's drum. Ads for overseas lenders that have little connection to the average Japanese, like Credit Agricole and Credit Suisse, adorn the facility. Almost all Japan's biggest domestic banks are sponsors as well.

Nearly 90% of the SoftBank Corp. shares to be listed next month are set to be sold within Japan, with retail investors comprising the bulk of the buyers. It will represent a sale of an unusually large scale, with more than 2 trillion yen worth of shares being divided up.

Banks are gearing up to fully mobilize to tackle the mobile unit's IPO. Even the world's most powerful investment banks are desperate not to get counted out by SoftBank, which is seen as a godsend to the capital market.

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