Softbank has been able to raise all this debt by offering its holding in Alibaba as collateral. The holding is worth $130 billion.
However the holding is not in readily realisable shares or bonds – it is in the form of securities which apparently need Alibaba’s permission to be sold.
There are signs Alibaba is unwilling to give this permission – previous part-disposals of this holding have been accomplished by tortuously complex transactions suggesting that they are not readily liquidated.
There are also signs that Softbank’s creditors are getting impatient, which may explain why Softbank is proposing to give up control of Sprint, IPO its Japanese telco and, possibly, re-list Arm.
Under the terms of some of the Japanese telco’s bonds, Softbank can’t IPO the telco while the telco’s bonds are rated as junk, which they currently are, so Softbank is issuing new bonds to buy these old bonds.
To sell the new bonds, Softbank has to offer generous terms which will reduce the value of the old bonds, making a lot of creditors unhappy and unhappy creditors can become vengeful creditors.
Arm, of course, now it is loss-making, may turn out to be worth less than the $32 billion which Softbank paid for it two years ago.
This has all the makings of a mess.
Besides the wretched bondholders, the main victim will, sadly, be Arm – a fine company betrayed by its top management, the City and the government.