£70bn Saudi-backed Softbank fund in talks with UK's Oaknorth

18 October 2018, 20:15 | Updated: 18 October 2018, 22:23

The world's biggest technology fund is in talks to buy a stake in the British digital bank Acorn Oaknorth Holdings - a deal that would indirectly make Saudi Arabia's sovereign investment vehicle a substantial investor.

Sky News can exclusively reveal that the Softbank Vision Fund‎ has been holding discussions for several months about injecting hundreds of millions of dollars into Oaknorth, a lender to small businesses.

A deal has yet to be agreed and could yet fall apart, according to people close to the talks.

However, sources said on Thursday evening that negotiations between the $92bn (£70.6bn) Vision Fund‎ and Oaknorth were "progressing".

If concluded, the Vision Fund's acquisition of a big stake in Oaknorth would probably represent the first UK company deal involving the Saudi Public Investment Fund‎ (PIF) since the alleged murder of the journalist Jamal Khashoggi.

On Thursday, Liam Fox, the International Trade Secretary, pulled out of attending a major investment conference in Riyadh next week because of the international furore over Mr Khashoggi's fate.

The Saudis are the biggest investor in the Vision Fund, set up by the Japanese businessman Masayoshi Son as a vehicle for backing some of the world's most promising tech start-ups.

Reports have suggested that the PIF agreed to invest $45bn (£36bn) in the Softbank fund, with the crisis over Mr Khashoggi's apparent death triggering speculation that the Japanese-based vehicle would pursue future capital-raisings without Saudi backing.

A deal‎ involving Oaknorth and the Vision Fund would be only its third investment in a UK company following its stakes in ARM Holdings, the chip designer, and Improbable, a creator of artificial and virtual reality worlds.

It would also underline the ambition of Rishi Khosla, Oaknorth's co-founder, who is a significant donor to the Conservative Party.

The Vision Fund's talks with Oaknorth are said to have been taking place since the summer, and commenced well before ‎a separate $100m (£77m) fundraising announced last month.

That deal valued Oaknorth at $2.3bn (£1.76bn) , making it one of the UK's richest fintech start-ups and cementing its status as a "unicorn" - a start-up worth at least $1bn.

Softbank's Vision Fund is understood to have discussed a number of options with Oaknorth, including subscribing for $500m (£384m) of new shares as well as acquiring shares from other investors worth a similar sum.

Any new investment would probably take place at a modest premium to the most recent funding round, which saw $100m‎ buying a 4.3% stake in the company.

At a $2.5bn (£1.9bn) valuation, a $500m investment would equate to a 20% stake.

The digital lender‎ has already raised a total of $455m from the sale of new shares, one of the largest totals ever recorded by a UK tech start-up.

OakNorth focuses on lending sums of up to £20m to entrepreneurs, and broke even before it had marked its first year of operation.

It has tried to differentiate itself through the quality of its cloud-based technology platform, underlining the extent to which advances in areas such as machine learning and artificial intelligence (AI) are now playing a central role in the banking sector's development.

‎Oaknorth says it has yet to see a single default on its loan-book, raising expectations that it can roll out its fintech platform globally.

Its discussions with the Vision Fund come amid a frenzy of fundraising activity in the fintech sector, with the likes of Monzo and Zopa also raising money at lofty valuations.

In an announcement‎ about its $100m raise, Oaknorth said it would have a loan book of about $2.8bn by the end of the year, and that its lending activity had helped to create 8000 UK jobs.

Oaknorth's existing investors include Singapore's Government Investment Corporation (GIC), Indiabuls, Clermont Group and NIBC.

Its advisory board includes Lord Turner, a former chairman of the City watchdog, and Lord Maude, the former trade minister.

This week, it announced that Martin Stewart, a former regulator at the Bank of England, would join their ranks.

Both Oaknorth and the Softbank Vision Fund declined to comment on their discussions.