SoftBank obtains majority stake in Katerra with a $ 200 million bailout

SoftBank’s new investment will enable Katerra to avoid seeking bankruptcy protection, said Katerra’s CEO, Paal Kibsgaard. The company needed SoftBank’s latest investment “to maintain its continuity,” he said in a message to shareholders on Wednesday’s meeting.

As part of the financing package, SoftBank-backed financial services firm Greensill Capital agreed to cancel approximately $ 435 million in Katerra’s debt in exchange for an approximately 5% stake in the company, Mr. Kibsgaard said in an interview Wednesday.

Founded in 2015, Katerra seeks to compete with established builders by assembling building elements in factories and offering services such as plumbing and architecture under one roof.

But some of the company’s projects have been plagued by delays and cost overruns, while its aggressive growth strategy and high indebtedness deplete cash reserves. The Covid-19 pandemic, which slowed construction projects in some cities, presented another challenge.

SoftBank, the world’s largest technology investor, was an early financier of Katerra. The bailout marks the second time this year that SoftBank has increased its investment in the company. In May, when the Katerra board offered Mr. Kibsgaard as CEO, the startup secured an additional $ 200 million investment from SoftBank.

Katerra initially thought money was enough, Mr. Kibsgaard said in the interview, but later realized that a more serious restructuring was needed. Mr. Kibsgaard, the former head of the oil services company Schlumberger Ltd., was hired as CEO with a mandate to manage the company’s finances.

Mr. Kibsgaard said in the interview that before becoming CEO, the company discovered financial practices that were inconsistent with generally accepted accounting principles and launched an investigation. The probe resulted in people being fired, he said. The irregularities were not material and the company did not need to reformulate its results, he said.

In a statement Wednesday, SoftBank said Mr. Kibsgaard has “addressed several operational inefficiencies and improved Katerra’s financial trajectory” and that it “remained committed to the company’s long-term vision and believes the current leadership team is able to move from these vision a reality. “

Katerra expanded aggressively by acquiring other construction companies and building factories in a number of cities. Michael Marks, a co-founder of Katerra who served as CEO before Mr. Kibsgaard, said in an interview in February 2019 that the company is expected to be “cash flow neutral by the end of this year.”

On Wednesday, Mr. Marks said in a statement, “I have a lot of respect for the support we have received from SoftBank and wish them all the best and hope I can help.”

Mr. Kibsgaard said the company took on too many projects and side activities in the previous years. “I think we have underestimated the complexities of running self-executing projects on a large scale, including manufacturing and material sourcing and managing our own labor,” he said.

The company is scrapping significantly in the US and plans to wind down unprofitable side businesses and get rid of some of its leases, Mr. Kibsgaard said. He said Katerra is on track to generate between $ 1.5 billion and $ 2 billion in revenue this year and expects to see positive cash flow by 2022.

Best known for its $ 100 billion Vision Fund, SoftBank has seen several high profile flops. In October 2019, the investment firm agreed to offer WeWork a lifeline after a failed IPO left the office company running out of money.

But on balance, 2020 was a good year for SoftBank. It has cashed in several successful investments and its shares are up more than 50% this year.

—Eliot Brown contributed to this article.

Write to Konrad Putzier at [email protected]