SoftBank wants $8B margin loan from Arm IPO

SoftBank Group Corp. is asking banks jostling for roles on a potential listing of Arm Ltd. to underwrite a margin loan of about $8 billion, according to people familiar with the matter.

The margin loan financing — linked to Arm’s IPO stock — is one option under consideration as SoftBank lines up an advisory roster for what could be the year’s biggest initial public offering, the people said, asking not to be named as the details aren’t public.

Banks are planning to pitch IPO valuations for Arm of upward of $50 billion, the people said. Arm is likely worth $25 billion to $35 billion based on the industry’s valuation metrics and analysts’ early projections, Bloomberg reported this month. Nvidia’s collapsed attempt to buy Arm for a combination of cash and stock was worth about $40 billion when announced in 2020 and rose to more than $60 billion as the bidder’s shares climbed.

SoftBank founder Masayoshi Son is choosing to list Arm in the U.S. despite London’s attempts to woo technology majors to the domestic exchange because of the potential to get a better valuation for the firm, people familiar with the matter said. Son has been pitching the potential of an Arm IPO since news broke that Nvidia was walking away. “This is a return to our original plan,” he told investors and analysts last week. “We will aim for the biggest IPO ever in semiconductor history.”

Riskier finance
SoftBank’s request for a margin loan will test banks’ appetite for riskier forms of financing after some high-profile blow ups in recent years. The Federal Reserve, in a review of the massive losses banks incurred in the collapse of Archegos Capital Management, told lenders in December they must maintain sufficient margin when dealing with investment funds and are responsible for understanding their positions.

This isn’t the first time Son has linked IPO mandates to margin loans. In 2018 it lined up commitments for a loan of $9 billion for its Vision Fund, provided by advisory firms including arrangers of its Japanese wireless business’s initial public offering, who had been asked to lend to other parts of the parent company’s empire, Bloomberg reported. Last year, the fund arranged margin loans backed by its stakes in South Korean e-commerce giant Coupang Inc. and online food-delivery service DoorDash Inc.

Globally, IPO markets have had one of the worst starts to the year on record as a rout in technology stocks, concerns around rising interest rates and geopolotical tensions dent investor enthusiasm for new issues. That is making mandates like Arm particularly sought after by investment banks in the competitive IPO advisory business.

Against that backdrop, it’s possible the Arm valuations that banks are planning to pitch could go even higher than $50 billion, one of the people said. When SoftBank-backed WeWork made its ill-fated attempt to go public in 2019, bankers pitched valuations far in excess of the company’s $47 billion private market valuation. Bloomberg