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SoftBank urges WeWork to shelve IPO

Cool reception from investors to proposed float of lossmaking property group

WeWork's listing document raised concerns over co-founder Adam Neumann’s influence over the US office space provider.   © Reuters

NEW YORK (Financial Times) -- SoftBank, the biggest outside shareholder in WeWork, is urging the lossmaking property group to shelve its hotly anticipated initial public offering after it received a cool reception from investors, according to people briefed on the discussions.

WeWork's parent company, the We Company, has been aiming to raise between $3bn and $4bn in its flotation. But it has faced criticism from investors and analysts on Wall Street over its governance, payments made to co-founder and chief executive Adam Neumann and its use of a complicated corporate structure.

SoftBank and its Saudi-backed Vision Fund have pumped more than $10bn into the office space provider. But SoftBank's enthusiasm for a listing has waned as bankers have slashed the valuation they believe the We Company can attain when it lists.

Advisors for the We Company were said to still be testing investor appetite at a valuation of between $15bn and $20bn, according to people briefed on the matter. That is far below the $47bn valuation given to WeWork when SoftBank invested $2bn in the business this year.

SoftBank itself is trying to raise $108bn for a second Vision Fund to invest in technology start-ups. The Japanese group could face challenges raising that sum if the We Company were to list at a steep discount to its last funding round, the people said.

WeWork is set to receive $1.5bn from SoftBank next year as part of an agreement struck at the start of this year. The company listed $2.5bn of cash and cash equivalents on its balance sheet as of June 30, according to filings with US securities regulators.

The We Company, citing mandatory restrictions on communications ahead of an IPO, and SoftBank declined to comment.

If the We Company were to shelve the listing, it would also lose access to a $6bn loan from a group of banks, including JPMorgan Chase and Goldman Sachs, that was contingent on the IPO raising at least $3bn in new investment.

The lack of more than $9bn in new capital could force a dramatic change in the We Company's corporate strategy, including its aggressive expansion that has seen it open 528 locations in more than 110 cities.

The company has lost more than $4bn since 2016, burning through capital even as its revenues have doubled each year over that period. WeWork said in its IPO filing that it could slow its expansion dramatically if it needed to become profitable.

But investors have remained sceptical of the business model, which has not yet been tested by a significant economic downturn. Some investors have raised concerns about its practice of leasing office space for a long period - on average for 15 years - while renting to tenants on a shorter basis.

WeWork has sought to address some of the issues investors and analysts have raised ahead of its IPO. Mr Neumann has returned a $5.9m payment his investment vehicle received from the company for the rights to use the trademarked word "we". The We Company also disclosed last week that it would add a woman to its all-male board of directors once it completed its listing.

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