Work from home surges – management struggles due to interest rate hikes
Masayoshi Son, who invested 22 trillion won, is likely to suffer huge losses.
The company said, “There will be no change in operations in Korea.”
WeWork, known as the star of the shared office industry and once valued at $47 billion (approximately 63 trillion won), filed for bankruptcy protection in a New Jersey court on the 6th, unable to overcome repeated management difficulties. This is because the demand for offices has decreased due to the rapid increase in working from home due to the novel coronavirus infection (Corona 19), and the burden of various costs has also increased due to a sharp increase in the base interest rate in the United States.
Bloomberg News commented, “It is a downfall that will go down in history,” adding, “The shadow of the venture capital industry, which has only pursued ‘growth’ by any means necessary, has been revealed.” Softbank Chairman Masayoshi Son (pictured), who invested a large amount of money in WeWork, is also expected to suffer significant losses. His cumulative investment amounts to $16.9 billion (about 22.15 trillion won). Anxiety in domestic related industries is also increasing.
According to the Wall Street Journal (WSJ), WeWork disclosed in its bankruptcy protection filing that it had approximately $18.6 billion in debt. As of June this year, the rent and interest that WeWork must pay is $2.7 billion per year, which is close to 80% of annual sales. Bankruptcy protection, commonly referred to as ‘Chapter 11’, is similar to court receivership in Korea and is a procedure to temporarily suspend the company’s performance of its debts and begin selling its assets.
Founded in 2010, WeWork has grown rapidly thanks to the global startup craze. In addition to renting shared offices to startups on short-term contracts, they held networking events and exercise classes among tenant companies and provided free beer and beverages. WeWork also claimed that it is more than just a space sharing company, but also an information technology (IT) company that thoroughly collects and analyzes work data of its customers. This is why the corporate value reached $47 billion in January 2019, just before the initial public offering (IPO).
However, the IPO and COVID-19 revealed that the business structure was poor. They borrowed other people’s money to aggressively open branches in major cities around the world, and even though their expenses were more than twice as large as their sales, they were obsessed with increasing their size.
Founder Adam Newman’s behavior also took a huge toll on the corporate value and image of the company. He was kicked out in September 2019, when preparations for the IPO were in full swing, because he leased a building he owned to WeWork and misappropriated company money for various eccentric activities. Ultimately, the IPO was canceled.
In the midst of this, COVID-19 broke out and dealt a fatal blow. Because most branches had long-term contracts with building owners, it was difficult to respond quickly by hastily reducing branches. Since then, due to the high interest rate policies of countries around the world, they have been suffering from the burden of fixed costs such as rent and interest.
However, the application for bankruptcy protection only applies to branches in the United States and Canada. WeWork has 700 branches around the world, about half of which are in the United States and Canada. There are 19 domestic branches.
WeWork sent a Korean email to domestic companies on the 7th in the name of CEO David Tolley, saying, “The corporate rehabilitation process through filing for bankruptcy protection is not carried out in Korea. “We do not expect any changes in operations,” he said. However, an official from a domestic startup located in WeWork expressed concern, saying, “We are carefully watching the situation as our headquarters is in financial difficulties.”
Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.