SUMMARY
WeWork seeking to borrow $2 Bn in letter-of-credit and $4 Bn in a delayed-draw term loan
Bank commitments may only be honored if WeWork raises at least $3 Bn in IPO
The company plans to expand globally, and could sharpen focus around the Indian market
Coworking company WeWork is reportedly setting up $6 Bn in financing as it plans to increase and deepen its global footprint. Ahead of its IPO, WeWork is seeking to borrow in two ways: a $2 Bn letter-of-credit facility and a $4 Bn delayed-draw term loan, people with knowledge of the matter told Bloomberg.
But this comes with a catch. Banks will have to make good on their commitments only if at least $3 Bn is raised in the offering, upping the stakes for the IPO. The larger facility can be drawn down beginning in September, and again in August 2020 and March 2021, if WeWork meets certain performance targets.
The company confidentially filed for an IPO in April, but its losses have continued to bring up questions about any potential profitability in the future. The company doubled its losses last year to $1.93 Bn, while revenue also more than doubled to $1.82 Bn.
WeWork is reportedly also under pressure after private equity behemoth SoftBank Group backed off a plan late last year to pump $16 Bn of equity into the startup.
WeWork Courts Analysts Ahead Of IPO
Bloomberg reported that the new financing round may give WeWork more discretion when setting the size of its IPO that may raise $3.5 Bn in September. As part of its pitch, WeWork disclosed metrics to analysts, including that its year-over-year revenue growth run-rate is 105%, based on $3 Bn in run-rate revenue, the report said.
The company told analysts its net member retention rate is 121%, exceeding 100% because businesses already in its membership base are growing. Enterprise clients account for 41% of WeWork’s membership base. These include BlackRock, Adidas, Citigroup and Salesforce, according to the company’s website.
What Funding Could Mean For WeWork India
If the plans succeed it could help with the company’s plans to reportedly take majority control of its India affiliate that would allow the shared-office startup to consolidate financial results from the fast-growing unit.
WeWork has been reported to talk to acquire around 70% of WeWork India at a valuation of about $2.75 Bn and a deal of around $1.9 Bn could be part cash and part stock, and be completed by as early as August but nothing is final yet. WeWork India is a brand franchisee controlled by Buildcon LLP, which is owned by real estate billionaire Jitu Virwani and his son Karan Virwani.
The member base at WeWork India has grown to over 25K members in 21 open locations across Bengaluru, Delhi and Mumbai within 18 months of its launch. It hosts companies such as Microsoft and Amazon in Bengaluru, and Spotify and Bumble in Mumbai.
One of WeWork’s main rivals in India is OYO Hotels and Homes which acquired Delhi-NCR-based Innov8 for INR 220 Cr, which marked its entry into the coworking space. But other players such as 91springboard have a more embedded presence and also seem to have earned greater traction being an early move in this space. Nevertheless, the real estate startup ecosystem — particularly in regard to coworking — has a major growth opportunity in infrastructure upgrades in the urban context and new developments outside the big cities in Tier 2 and Tier 3 market. All of this ties into the Smart City project being pushed by the government which desperately needs momentum. Could WeWork’s push into international markets, including India, give the market that booster shot?
