SoftBank Group has raised $11.1 billion through dollar- and euro-denominated bonds as the Japanese technology investment company seeks to finance its expanding artificial intelligence investments, including a planned $10 billion payment to OpenAI.
The transaction, completed on September 24, represents the largest high-yield corporate bond sale globally on record, according to Reuters, and adds to a growing wave of borrowing by companies seeking to finance artificial intelligence infrastructure and investments.
SoftBank completes $11.1 billion issuance
The company issued three dollar-denominated senior notes and two euro-denominated tranches.
The dollar notes consist of $1 billion with a three-and-a-half-year maturity, $4.5 billion with a five-and-a-half-year maturity and another $4.5 billion with a seven-and-a-half-year maturity.
The three dollar bonds carry interest rates of 8.625%, 9.25% and 9.75%, respectively.
SoftBank also issued two €500 million euro-denominated senior notes, with four-year and six-year maturities. They carry yields of 7.125% and 8%.
The relatively high yields reflect the cost of borrowing for a company whose debt is rated below investment grade.
OpenAI investment is a major use of the proceeds
SoftBank said the new bonds will help finance the final $10 billion tranche of its planned $30 billion investment in OpenAI, the company behind ChatGPT.
When the planned investment is completed, SoftBank’s total investment in OpenAI is expected to reach approximately $64.6 billion, according to Reuters.
SoftBank is expected to hold roughly 13% of OpenAI following completion of the investment.
The financing therefore links one of the world’s largest corporate bond transactions directly to the expansion of the generative AI industry.
SoftBank has increasingly positioned itself as a major investor across the AI ecosystem, including AI models, semiconductor technology, data centres and robotics.
The transaction follows another large bond sale
The latest international bond offering is not SoftBank’s only recent borrowing.
Earlier in September, the company issued 1 trillion yen, approximately $6.3 billion at the exchange rate cited by Reuters, in corporate bonds aimed at retail investors in Japan.
The two transactions demonstrate the range of funding sources SoftBank is using to finance its AI strategy.
The September retail offering targeted Japanese investors, while the latest transaction accesses international institutional debt markets through dollar and euro bonds.
Borrowing costs reflect the risk profile
SoftBank’s dollar bonds carry interest rates between 8.625% and 9.75%, significantly above yields on highly rated government debt.
The company is rated below investment grade, which means investors demand higher returns to compensate for greater credit risk.
The borrowing costs are also being established during a period of increased scrutiny of corporate debt markets.
Reuters reported earlier in September that investors were becoming more selective toward debt issued by companies heavily involved in AI, partly because of uncertainty surrounding the amount of capital required for data centres, chips and other AI infrastructure.
AI investment is driving more corporate borrowing
SoftBank’s transaction is part of a broader increase in borrowing connected to the AI boom.
Major technology companies have been raising substantial amounts of debt to finance data centres, computing infrastructure and other capital-intensive projects.
Reuters reported that projected borrowing by major hyperscale technology companies could rise substantially as companies expand AI infrastructure. Investors have increasingly focused on whether future AI revenues will justify the amount of capital being committed.
SoftBank’s financing differs from the debt issued by large operating technology companies because much of its strategy involves investing capital into other businesses and technology assets.
That makes the value and performance of those investments important to its financial position.
SoftBank is expanding across the AI supply chain
The company’s AI strategy extends beyond OpenAI.
SoftBank has been pursuing investments across several parts of the technology industry, including semiconductors, robotics and data-centre infrastructure.
Reuters reported that SoftBank is also acquiring ABB’s robotics business for $5.4 billion and DigitalBridge for $3.1 billion.
The strategy reflects founder and Chief Executive Masayoshi Son’s ambition to position SoftBank as a major investor across the AI technology stack.
That approach requires substantial capital, making access to debt and equity markets an important part of SoftBank’s financial strategy.
OpenAI financing has become a major SoftBank commitment
The scale of SoftBank’s OpenAI investment has increased considerably over time.
The company has committed tens of billions of dollars to the AI developer, making the investment one of the largest individual components of its current technology strategy.
The final $10 billion payment is expected to bring SoftBank’s total OpenAI investment to $64.6 billion when completed, according to Reuters.
The bond proceeds are therefore being raised partly to meet a specific funding requirement rather than simply to provide general liquidity.
Investors are watching SoftBank’s financial exposure
The size of the borrowing has also drawn attention to SoftBank’s financial exposure to the AI sector.
Reuters reported that the new bond issuance could prompt additional scrutiny of SoftBank’s finances if market sentiment toward OpenAI or the broader AI industry were to weaken significantly.
This does not mean that SoftBank is currently unable to meet its obligations.
Rather, the concern is about the relationship between the company’s debt burden and the value of its large technology investments.
If the value of major portfolio holdings changes significantly, SoftBank’s financial position could also change.
The debt market is becoming more selective
The timing of the transaction is also significant because global bond markets have recently faced pressure from higher interest rates and inflation concerns.
Investors have been demanding compensation for the risks associated with longer-term debt and companies with substantial financing requirements.
Reuters reported that spreads on AI-related corporate bonds had widened relative to the broader corporate bond market as investors became more cautious about the amount of borrowing required to support the AI infrastructure build-out.
SoftBank’s ability to complete the transaction at the targeted size therefore provides an important indication of continued access to international debt markets, although the high coupons show that the financing comes at a substantial cost.
What the financing means for SoftBank’s AI strategy
The new funding gives SoftBank additional capital to continue implementing its AI investment plans.
The immediate priority is the final $10 billion payment associated with its OpenAI commitment.
Beyond that transaction, SoftBank’s broader strategy involves financing investments in companies and infrastructure connected to artificial intelligence.
The company is therefore increasingly exposed to the performance of the AI sector.
A major test of AI-related financing
SoftBank’s $11.1 billion bond transaction illustrates the enormous amount of capital now being mobilised around artificial intelligence.
AI companies and their investors require substantial funding for computing capacity, data centres, semiconductor supply chains and model development.
SoftBank is using the international debt market to finance part of that expansion.
The transaction also illustrates the financial risks accompanying the AI investment cycle. The bonds carry high interest rates, while SoftBank’s large commitments depend partly on the future value and performance of its technology investments.
For now, the company has completed one of the largest high-yield corporate bond transactions ever recorded and secured funding for another major stage of its OpenAI investment.
How those investments perform over the longer term will determine the financial returns generated from the borrowing.
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