SB Energy provided OpenAI with $5.5 billion in warrants to secure a 20-year lease.
SB Energy has issued warrants to OpenAI, which are now valued at approximately $5.5 billion, in order to retain OpenAI as a tenant. This arrangement was reported by The Wall Street Journal on Monday.
It’s important to note the dynamics of this arrangement, which can easily be misunderstood. SB Energy, a developer of power and data centers owned by SoftBank, is the issuer of the warrants, while OpenAI is the recipient. This means it’s a case of a landlord compensating its key tenant rather than a customer investing in the property.
These warrants were granted in January when they were valued at $3.6 billion. By the end of June, their value had climbed to $5.5 billion, reflecting an increase of around $1.9 billion due to the growing value of the underlying equity rather than any actions taken by OpenAI.
Essentially, what OpenAI has secured is a long-term lease. OpenAI has agreed to a 20-year commitment at SB Energy's planned campus in southern Ohio, a ten-gigawatt facility announced in mid-August, with operations set to begin in 2028.
Both OpenAI and SoftBank have invested $500 million into SB Energy, linked with a lease for a 1.2-gigawatt facility in Texas, and the warrants were allocated during this same timeframe.
The ten-gigawatt capacity merits attention; it represents the electrical demand typically associated with a mid-sized European nation, allocated to a single campus by a company that has only existed in its current form for five years.
Additionally, SB Energy is preparing for an initial public offering, aiming for proceeds between $5 billion and $7 billion. Following this listing, OpenAI is anticipated to retain a small percentage stake, effectively turning a tenant into a shareholder right when public investors are called to assess the company's value.
Nvidia is also involved from a different angle, considering a $3 billion investment in SB Energy linked to the Ohio project, according to The Information.
When viewed together, the arrangement resembles a cycle by design. The chip manufacturer, the power developer, the model company, and the parent organization that controls two of these entities all hold financial interests in the same development, with each party’s valuation partially reliant on the continued support of the others.
To date, SoftBank has committed over $64 billion across OpenAI's equity, joint investments in SB Energy, and Stargate. The rationale stated is to secure ownership of the model layer via OpenAI while managing the physical layer through SB Energy, necessitating the ongoing collaboration of both.
This pattern is not isolated to this instance. Nvidia is in discussions to guarantee $250 billion of OpenAI’s data center debt, also based in Ohio, with lenders becoming noticeably more cautious about the industry.
Financing conditions have tightened rather than improved. Oracle’s $16.3 billion data center package required PIMCO to anchor $10 billion when U.S. banks retreated, reflecting a challenging market environment.
SoftBank has been operating with the same expectations, having signed a $40 billion bridge facility in March to support its commitments to OpenAI, while seeking a permanent replacement since then.
In such an environment, warrants serve as a beneficial tool because they incur no immediate cost. SB Energy only pays if its equity rises, with any dilution affecting those who participate in the IPO instead of appearing on current balance sheets.
Moreover, there is uncertainty surrounding who absorbs the risk if demand falls short. A 20-year lease constitutes a liability for OpenAI but an asset for SB Energy, and the warrants position OpenAI as a beneficiary of the value generated by its own commitment.
Neither OpenAI nor SB Energy has publicly commented on the specifics of the terms, and the information available relies on unnamed sources.
What is known, however, is the scale of the commitment: a 20-year lease, ten gigawatts of capacity, and a set of instruments that have already seen a significant increase in value before construction has commenced at the site.
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SB Energy provided OpenAI with $5.5 billion in warrants to secure a 20-year lease.
The developer, owned by SoftBank, issued the warrants to secure OpenAI as the primary tenant of a ten-gigawatt campus in Ohio. Since January, their value has increased by $1.9 billion.