Once the hottest tip on the New York Stock Exchange, WeWork, who turned redesigning and refurbishing office space into a billion-dollar business, is facing mountainous financial pressures over allegations it might have overstated its value by 50 per cent and has delayed its IPO indefinitely.
WeWork’s parent company, We Co, is now considering selling its shares at a more than 50 per cent discount to boost liquidity.
The company is also said to be asking its backer, Japanese technology giant SoftBank which has already provided $10.5 billion for more money to keep going.
The New York Times says We Co and its financial advisers are in talks to reduce the value of the business from between $A29.4b and $A40b – well below the approximately $A70 valuation of last January.
It is a startling fall from grace for a company that seemingly could do no wrong as it captured the attention of investors with its welcoming designs.
Under the WeWork plan, run-down office space was transformed into sleek, slick modern designs offering style and comfort that attracted customers ranging from freelancers, Fortune 500 companies and start-ups.
It also used free beer, an active social calendar and other enticements to generate camaraderie.
The successful renovations and subsequent rocketing share price of WeWork stunned the New York real estate community who watched enviously as the refurbishing program of cleanly defined workplaces gathered pace.
Then came the sobering moment in the guise of a full-scale exposure of the company’s financial structure as part of its regulatory filings.
It showed that WeWork did not have any significant advantage over other companies doing the same thing.
Last year WeWork had an operating loss of $1.7b on $1.8b in revenue, incurred to a large degree by the high costs of designed and reinventing the office spaces.
Banks have agreed to lend WeWork $US6b conditional on the We Co Company raising at least $US3b in a public offering.
Now that the IPO has been delayed, analysts say it will be more difficult to persuade investors to become involved.
Analyst Kevin McNeill from Fitch Ratings told the New York Times that because WeWork did not complete the IPO, the potential remained for the company’s entire credit profile to be re-examined.
The huge outlay of billions of dollars in renovation costs is also thought to have left WeWork vulnerable to any substantial downward shift in the economy that would cause tenants to walk out on their lease or make the premises difficult to rent.