Global flexible office space giant WeWork has cancelled plans for an initial public offering (IPO), a week after announcing that its long-hyped public listing would be delayed.
The decision places pressure on the firm's biggest investor, Softbank, which has directly invested around $7.5 bn (€7.9 bn) in WeWork, excluding some $1.6 bn already invested in its overseas subsidiaries.
In January of this year, when IPO plans were first raised, the firm was valued at around $47 bn. However, as the IPO date neared, the cracks began to show in WeWork's business model.
Potential investors balked at WeWork's ongoing deficit, after the firm unveiled losses of $900 mln for the first six months of the year, in documents filed with regulators ahead of the IPO.
Questions were also raised about the firm's long-term lease obligations and the extensive role of founder Adam Neumann, who later stepped down from the helm of the company.
Softbank were betting on making a $7 bn paper profit if WeWork had been able to live up to the $47 bn valuation, according to calculations by Chris Lane, a senior research analyst at Sanford C. Bernstein.
According to Lane, for Softbank to break even on its investment, WeWork would need to command a $24 bn valuation at an eventual IPO.
However, the event horizon for a public listing appears to now be shrinking, despite the exit of Neumann from the firm's board.
The listing delay is likely to also stall a $6 bn credit facility that was being provided by a consortium of banks, contingent on a successful IPO by December 31. WeWork needed to raise some $3 bn via the listing to access the funding.
In the absence of fresh equity, WeWork's cash-hungry business model may even result in property defaults, experts warned.
'Anyone looking at a building that has got significant WeWork occupancy has got to be very concerned,' US property developer Don Peebles told CNBC.
The IPO u-turn signals 'the end of the days of endless capital for unprofitable businesses', according to Morgan Stanley equity strategist Michael Wilson.
Wilson said in a note to clients that the listing failure was reminiscent of other corporate events marking the top of cyclical trends, such as the end of the dot com bubble, and was likely to represent a 'critical turning point' for markets.
