SINGAPORE/TOKYO, Nov 6 (Reuters) - The cost of insuring against a default for tech investor SoftBank Group jumped to its highest in four years on Friday as worries about AI profitability roiled the world's financial markets.
The 5-year credit default swap spread for SoftBank rose by 17.4 basis points to 462 bps, according to Markit data, the widest since October 2022.
SoftBank is seen as a bellwether for the prospects of AI investment due to its $64.6 billion investment in frontier model developer OpenAI, 90% stake in chip designer Arm and financing of data centre development through subsidiary SB Energy.
Investors have increased their scrutiny of SoftBank's finances this year as it has taken on more debt at record yields to fund its OpenAI stake, while prospects for a return on investment have been pushed back by OpenAI delaying its public offering to 2027.
The Democratic Party's sweeping wins at this week's midterm elections in the US have sparked fears of a slowdown in the pace of AI infrastructure development, adding to a rise in the credit default spreads of firms that have taken on debt to lead the buildout.
In September, SB Energy filed for a public listing at a potential valuation of $50 billion but media reports say the listing has been delayed until December or later.
The IPO filing revealed it expects revenue of some $439 billion based on its contracts with end-users but does not currently have any operational data centres and is substantially dependent on OpenAI.
"There's been a steady decline in the credit standing of AI infrastructure firms and this week equity markets are finally pricing in a slowdown in data centre development, but I think we've hit the bottom near term," said Amir Anvarzadeh, a Japan equity market strategist at Asymmetric Advisors in Singapore.
SoftBank's share price fell more than 11% on Friday and has fallen by almost half since the start of September.
The midterm election results have put one-third of US data centre capacity at risk as the planned data centres sit in states where governors may slow development, Rolf Bulk, head of semiconductors and infrastructure at the Futurum Group, wrote in a research report on Thursday.
(Reporting by Tom Westbrook and Anton Bridge; Editing by Thomas Derpinghaus and Christian Schmollinger)
