SoftBank urges WeWork to shelve IPO over valuation concern

WeWork owner The We Company is considering slashing the valuation of its forthcoming IPO to below $20 billion, two sources said, in the latest headwind for leading shareholder SoftBank Group whose key group portfolio firms have tumbled in value.

The valuation for the money-losing US office-sharing startup could be as low as $15 billion-$18 billion, one of the sources with direct knowledge of the matter said. The other source said the valuation was unlikely to be as low as that.

SoftBank, whose $100 billion Vision Fund is widely seen as having contributed to frothy tech valuations, has urged WeWork to shelve the IPO due to tepid investor demand, the Financial Times reported. SoftBank declined to comment.

The Japanese group made a follow-on investment in WeWork, one of its biggest tech bets, at a $47 billion valuation earlier this year – a number widely treated with scepticism by analysts.

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But the tech conglomerate’s reluctance to pump further funds into WeWork means the startup “may have no choice but to push ahead with the IPO at a much lower than anticipated valuation”, one of the sources said.

The prospect of a delay is giving bond investors the jitters. The office leasing company’s high-yield bond slipped below face value Tuesday morning in New York for the first time since the company filed to go public in August. The 7.875 per cent notes due 2025 dropped three US cents to 97.75 cents on the dollar

WeWork’s planned listing follows weak initial trading at other startups including Uber and Slack, both backed by SoftBank.

Sanford C. Bernstein analyst Chris Lane said that if WeWork halts its IPO, SoftBank could come up with an alternative funding plan for the startup, which he estimates needs $9 billion in funding to become cash-flow positive.

SoftBank “have got an important voice, but more importantly they have money ... (WeWork) will have to listen to them,” said Mr Lane, who values the office space-sharing firm at $23 billion.

The tech conglomerate has burned through much of the $100 billion raised by its first Vision Fund in just two years, recording big paper gains on internal revaluations of its tech investments.