Security & Fraud

Almost Half Of Wirecard’s Debt Stemmed From SoftBank’s $1B Investment

Much Of Wirecard’s Debt Stemmed From SoftBank

SoftBank Group Corp., the Tokyo-based multinational conglomerate that owns stakes in technology and finance companies, invested $1 billion in Wirecard AG last year in a move that quieted questions about the German payment processing firm.

Today, Wirecard is fighting to survive as German prosecutors allege that the company’s inflated balance sheet allowed it to raise 3.2 billion euros ($3.7 billion) in debt leading up to its declaration of insolvency last month.

Nearly half of that investment came from SoftBank, The Wall Street Journal reported. Now, as Wirecard’s descent began with an auditor’s report that $2.1 billion in deposits was missing, the SoftBank deal is getting scrutiny.

The newspaper reports that SoftBank executives stood to profit personally from last year’s deal.

Included in the investment, unbeknownst to Wirecard’s investors, a multimillion-dollar finder’s fee was paid to a German businessman for bringing together executives from the two companies, sources told the WSJ.

Top SoftBank executives are trying to determine whether the Japanese conglomerate is at legal risk for injecting cash just before the “$2 billion black hole” on its balance sheet was discovered, per sources cited in the report. The consensus among the executives was that SoftBank is safe from lawsuits, but should expect to see its reputation suffer.

SoftBank has insisted that it took allegations of Wirecard’s accounting missteps seriously, but saw no evidence that they had actually occurred, a spokesman told the paper.

Questions were raised last month over SoftBank’s 6 percent stake in Wirecard amid concerns about the latter firm’s accounting practices. At the time, Wirecard’s financials were in good health, according to SoftBank. Its business was growing and Wirecard would later get an investment-grade credit rating from Moody’s. Since then, Moody’s has downgraded the company’s rating to junk.

This week, dozens of suitors with the backing of more than 130 investors have lined up to buy what’s left of Wirecard AG. The company’s stocks soared by as much as 37.5 percent in Frankfurt, the steepest gain since June.

Michael Jaffe, the company’s insolvency administrator, said the bidding is expected to start next month, and Jaffe said he is confident of finding buyers.

Earlier this month, SoftBank reportedly was looking to distance itself from Wirecard due to the ongoing scandal.

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