SoftBank sells most of its Alibaba stake

SoftBank is selling almost all its Alibaba shareholdings, limiting its exposure and raising cash in the face of market declines that threaten the technology investments.

After a record $29bn sale last year, the Japanese group led by Masayoshi Son, a billionaire founder, has sold approximately $7.2bn of Alibaba shares through prepaid forward contracts.

Forward sales ,revealed by an analysis of regulatory filings received by post to the US Securities and Exchange Commission will eventually reduce SoftBank’s stake at the $262bn Chinese Ecommerce Group to 3.8 percent.

SoftBank has the option to purchase back shares. However, the group has already settled other deals by transferring the stock. One time, the Japanese investor owned 34% of Alibaba.

SoftBank’s sale comes at an important moment for the Japanese company, which plans a massive listing of UK chip design firm Arm to help it recover from a series of failed investments and unprecedented losses. It will be a loss of a long-standing backer for Alibaba as the Chinese group tries to reinvent itself through six separate entities.

SoftBank’s sale spree came as shares in the Chinese group have fallen to six-year lows. This is a disappointing end to one of the best technology investments made. Son purchased the majority of SoftBank’s stake in the fledgling Chinese company for $20mn after meeting Jack Ma, founder.

Son said later on TV that he had no business plan, zero revenue and only 35 or 40 employees. His eyes were strong and bright. From the way he spoke and the way that he looked at things, I could see that he had charisma and leadership.Ma’s ability to speak his mind became a liability when he criticized China’s state-owned banking system at a financial summit held in Shanghai in October 2020. Beijing suspended the IPO of Ant’s sister company Alibaba. President Xi Jinping then launched a campaign for reining in China’s tech companies.

SoftBank has sold most of its shares at the same prices as where Alibaba opened trading in New York eighteen years ago.

SoftBank has reaped an average of $92 per share from forward sales of 389mn Alibaba share shares over the past 14 month, well below its record high of $317 per share according to data provider The Washington Service.

These figures show that SoftBank raised $4.5bn from forward sales of 46mn share shares in February. This follows the December sale of 30mn shares worth $2.7bn. SoftBank stated that the sale of the 30mn shares for $2.7bn in December was not completed and would be included in the company’s yet to be released financial reports for the quarter ended March 31.

SoftBank did not comment on the regulatory filings. However, it stated that the Alibaba transactions were a result of its shift to a “defensive mode” in order to deal with a more uncertain business climate. “We are strengthening our financial stability through increasing liquidity on hand and raising cash.”

The company stated that it would reveal the additional amount it had raised from Alibaba shares when it reports its fourth quarter results in May.With forward sales, SoftBank generally lends its Alibaba shares to a broker, which sells the shares into the market over a period of days or weeks. The broker takes a fee before returning the proceeds to the Japanese group.

SoftBank has two options when the contracts are due: either it can completely relinquish its claim on the shares or pay the broker a market price to repurchase those shares.

According to a banker who is familiar with the transactions, most of the latest deals were handled in part by Barclays and Mizuho Securities. SMBC Nikko Securities would receive less than 1% of the proceeds as fees. SoftBank can delay the payment of capital gains tax until settlement because of their structure.

According to estimates, SoftBank only had 98mn shares left of Alibaba to sell at the end of February. SoftBank stated in a statement that the group changed the way it held 22.3mn shares of Alibaba on March 30 “in view of the potential to utilize them for financing in future”.

Alibaba shares dropped as high as 4.6% in Hong Kong on Thursday. However, a full SoftBank exit could lift some of the selling pressure.

SoftBank claimed that monetisation of Alibaba shares was done to strengthen its finances. However, some investors see the move as a desperate attempt to boost its earnings figures. Analysts project a second consecutive year with heavy losses.

SoftBank has deposited the Alibaba sale proceeds into its Vision Fund II, paid off all debts and repurchased shares. According to SoftBank sources, Billions are also building up cash on the balance sheet. It stood at Y=5.8tn (or $43bn) at December’s end. This has led to an internal debate about how to spend the money.

SoftBank stated that it will continue to be selective in its investments due to uncertain market conditions.

“There are differing views within the organization about whether it is better to continue being a bit more defensive. . . SoftBank spokespeople close to the subject. “[Executives] seem to be more open to opening the spigot once again.”