Japanese Conglomerate, SoftBank Group, Intends to Procure a US$4.5 Billion Stock Loan

The Japanese conglomerate holding company, Softbank Group, announces in February 2020 that it was negotiating a 500 billion yen (US$4.5 billion) loan from a syndicate of 16 Japanese and foreign lenders. Softbank intends to secure the loan with up to 953 million shares of its subsidiary, SoftBank Corp. At the time of the announcement, the value of the collateral shares was more than 1.4 trillion yen.

The loan will be characterized as a nonrecourse margin loan and SoftBank will have no liability beyond the shares themselves if it defaults on repayment of the loan principal. The loan term is two years with a one-year grace period, and the final loan principal balance will be determined as a function of the closing price of SoftBank Corp’s shares before the loan is closed.

SoftBank Group indicated that it would use the proceeds of the loan to improve its overall cash position and to repurchase a portion of its own shares in response to the demands of an activist investor. The company has been known for its aggressive investment strategies. It previously procured a US$9 billion loan that it secured with shares of the Asian e-commerce company, Alibaba. With this transaction, SoftBank Group is expected to carry approximately 17 trillion yuan in debt. Regardless, the nonrecourse nature of its stock loans will not affect the company’s overall credit rating.

The terms and conditions of SoftBank Group’s collateralized securities loan are not known, but given the magnitude of the transaction, those terms and conditions are likely to be very detailed and specific. Apart from those details, this stock loan transaction has much in common with similar transactions that are available to individual investors who are seeking to improve their liquidity and cash positions.

Collateralized securities stock loan lenders source and originate debt financing in a range of US$1million to $US25 million or more, substantially according to the same contours as SoftBank Group’s loan and in many cases with more favorable terms and conditions. For example:

  • The projected principal balance of SoftBank Group’s loan and the value of the securities that the company proposes to pledge as collateral reflects a loan to value (LTV) ratio of approximately 35%. Many stock loan lenders to individuals and small businesses offer LTV ratios of 40% to 65%.
  • SoftBank Group’s loan has a two-year maturity. Individual stock loan lenders frequently offer loan maturities of three to ten years.
  • SoftBank Group has indicated that it will use the loan funds to repurchase its own shares. It is not clear whether SoftBank Group’s loan will include use of funds restrictions, but almost every nonrecourse stock loan that lenders offer to individuals have no fund use restrictions.

SoftBank Group’s willingness to finance a major transaction with a collateralized securities loan both legitimizes the stock loan market and reflects a growing trend among borrowers that are seeking to tap the cash value and liquidity of their equities holdings with stock loans. As international markets absorb the turmoil of the first quarter of 2020, corporate and individual borrowers will likely continue to fuel the growth of the collateralized securities stock loan market.