[Asia Economy Reporter Park Ji-hwan] An analysis has emerged suggesting that it is unreasonable to interpret WeWork's failure as the collapse of the sharing economy.
On the 5th, Shin Seo-jeong, a researcher at SK Securities, pointed out that the butterfly effect caused by the novel coronavirus infection (COVID-19), including the spread of concerns about untact (contactless) and economic recession, is a major negative factor for WeWork, which promotes shared real estate.
In fact, after the World Health Organization (WHO) declared COVID-19 a pandemic on March 11, the probability of default for WeWork's parent company, The We Company, rose from 0.8% at the beginning of the year to 3.9%. The default risk level was also upgraded from HY1 to HY2.
In the bond market, as of the closing price on the 2nd, the corporate bond interest rate level recorded 36%, and the price was $36.3. Considering that in early February, the interest rate was 14% and the price was $77, this indicates a strengthened sell-off movement within a short period.
SoftBank had planned to publicly buy back about $3 billion worth of WeWork shares as of the 1st, but announced a policy to reconsider the investment. This decision was based on the judgment that the prolonged COVID-19 situation poses sufficient default concerns due to WeWork's continued deficits and debt ratio in a state of capital erosion.
However, the analysis suggests that it is unreasonable to interpret WeWork's failure as the collapse of the sharing economy. WeWork's downfall can be summarized by CEO risk, reckless expansion, and business limitations that failed to evolve beyond simple leasing despite claiming to be a technology company.
Shin Seo-jeong of SK Securities emphasized, "Shared offices still continuously generate supply and demand from the perspective of efficient utilization of real estate and idle (or surplus) resources."
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