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SoftBank commits mobile unit holdings for $4.5 billion loan

On Wednesday, SoftBank Group said it would raise up to 500 billion yen (USD 4.5 billion) from 16 domestic and international lenders by committing a chunk of its mobile unit’s shares as collateral, marking the tech giants first concrete response to U.S. activist investor Elliott Management’s push to accelerate share buybacks.

SoftBank currently holds 3.18 billion shares, or a 66 per cent interest, through a wholly-owned subsidiary of the Japanese mobile unit of SoftBank Corp. That subsidiary will transfer 953 million shares to a newly created SoftBank subsidiary, worth around 1.42 trillion yen based on their closing price on Wednesday.

The converted shares will then be committed as collateral. The loan has a tenor of two years, with a grace period of one year. The rate of interest and other terms have not been revealed.

The size of the loan may adjust depending on the fluctuation of the stock price of SoftBank Corp.

SoftBank said the move was intended to broaden the cash position of the company but refused to elaborate.

The announcement comes after Elliott recently acquired more than a USD 2.5 billion stake in SoftBank. The activist investor is known to be pushing for USD 20 billion in share buybacks as well as changes in governance.

At last week’s SoftBank earnings conference last, company CEO, Masayoshi Son, said his thoughts on buybacks is “basically aligned” with Elliott’s, adding the timing and scale will depend on factors such as the company credit rating.

SoftBank, known for using sophisticated financial strategies to fuel Son’s aggressive investments, developed a similar scheme to use Alibaba shares as collateral to borrow around USD 9 billion. One significant benefit for SoftBank is that in the case of default, it classifies the margin loans as non-recourse, which means it is not liable for the loan.

SoftBank has about 17 trillion yen in debt when its non-recourse loads are included.

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