Update: Oracle unveils US$50bn capital raise in bid to steady nerves over debt
Oracle is raising up to US$50bn from investors, as the beleaguered cloud computing provider seeks to address growing concerns over the gargantuan amounts of debt it is taking on to fulfil commitments made to hyperscaler clients such as OpenAI.
It launched the first leg of the raise on Monday, with an eight-part bond sale with tranches ranging from three to 40 years across fixed and floating-rate structures. The deal is due to price later today.
While the size of the bond deal has not been officially announced, Oracle said that half the US$50bn capital raise would come in the form of "a single, one-time issuance of investment-grade senior unsecured bonds early in 2026" – implying the deal could be as big as US$25bn.
Bank of America, Citigroup, Deutsche Bank, Goldman Sachs (B&D), HSBC and JP Morgan are the active bookrunners.
Citigroup will lead the equity raise, which will consist of selling US$20bn of equity through a new at-the-market programme, alongside the sale of a mandatory convertible bond. Oracle offered no details on timing of the equity transactions but said that they had been signed off by the board. The company is scheduled to go into a blackout period at the end of February.
“Oracle is raising money in order to build additional capacity to meet the contracted demand from our largest Oracle Cloud Infrastructure customers, including AMD, Meta, Nvidia, OpenAI, TikTok, xAI and others,” the company said in a statement announcing its plans.
Plans to raise up to US$50bn of fresh capital come after a torrid few months for the company. After reaching a record high in September, when it was briefly valued at just below US$1trn, Oracle's shares have since fallen by more than half, wiping US$520bn off its market capitalisation.
Its fall from grace in bond markets has been just as dramatic. When the company sold US$18bn of bonds in September, investors almost fell over themselves to lend money to Oracle, with the deal more than four times subscribed. Investors in that deal are now sitting on more than US$1.2bn of paper losses.
Financial risk
Driving the selloff are concerns that Oracle is assuming too much financial risk to build data centres and buy chips to fulfil contracts with hyperscaler clients such as OpenAI, Meta Platforms and xAI that won’t generate any revenue for years – assuming they are able to pay at all.
In December, in a bid to steady investor concerns about its growing debt, the company pledged to do everything it could to preserve its investment-grade rating. That marked a dramatic shift in policy for Oracle, which before the meeting had no formal debt or ratings policy in place.
“As a foundational principle, we expect and are committed to maintaining our investment-grade debt rating,” said finance chief Douglas Kehring, adding that it would also seek ways to reduce its financing needs – such as renting rather than buying chips, or asking customers to provide their own.
In its announcement for its latest capital raise, the company reaffirmed that pledge, saying that – once the bond sale is complete – it does not expect to issue any more debt this year. It is rated BBB by S&P and Baa2 by Moody’s, placing it two notches above junk.
“This funding plan reflects Oracle's commitment to maintaining an investment-grade rating, prudent capital allocation, balance sheet strength, and transparency with investors as the company continues to expand its Oracle Cloud Infrastructure business,” Oracle said.
High debt levels
Unlike some other players riding the AI wave, Oracle came into the current boom with already high debt levels. During the 2010s, the company borrowed heavily to fund a series of acquisitions – and an aggressive share buyback programme that doubled founder Larry Ellison’s stake.
Its borrowings stand at US$108bn, ranking it as one of the most indebted companies in the world. But that debt load is expected to explode in coming years, with some analysts estimating net debt could reach almost US$300bn over the next few years.
Complicating matters is a class-action lawsuit from investors who allege the cloud computing provider misled them during its bond sale in September about the amount of debt the company would need to fulfil a US$300bn contract to supply OpenAI.
Ohio Carpenters' Pension Plan filed a complaint in January with the New York County Supreme Court. It is suing Oracle, three of its executives and 16 underwriters on behalf of investors who bought into the US$18bn bond offering on September 24.
It alleges that investors “suffered significant losses and damages” when – just weeks after the bond offering – reports emerged that Oracle would be taking out an additional US$38bn in bank loans to fund construction of two data centres to meet its computing contract with OpenAI.
The deal, which is the largest project finance loan in history, is fully committed but yet to formally close. Leads JP Morgan and MUFG had hoped to close the deal in November but concerns about exposure to data centre debt and AI companies meant the timeline slowed a little.