SoftBank plans to post a gain of more than $34 billion from the sale of some of its holdings in Chinese e-commerce group Alibaba, marking a historic shift in the Japanese group’s relationship with its best-known investment.
SoftBank had entered into a series of complex derivative agreements that allowed it to raise funds while retaining the ability to repurchase Alibaba shares later. But the company said on Wednesday that right would now be abandoned entirely, with many trades being pre-settled with shares.
SoftBank’s move marks a definite step back from the 22-year gamble on which Masayoshi Son made a name for himself as one of the world’s biggest tech investors.
The decision, which investors said suggested there could now be further sales to come, means SoftBank’s stake in Alibaba will drop from its 23.7% stake at the end of June to 14.6% by the time the settlement process will be completed in September.
The reduced stake in Alibaba will push SoftBank below the threshold to retain its seat on the Chinese e-commerce group’s board and prevent the Japanese group from continuing to recognize its share of Alibaba’s revenue in its financial statements.
It will also void a voting agreement with Alibaba Vice Chairman Joe Tsai that required SoftBank to vote its shares under the direction of Jack Ma, Tsai and other senior executives.
The sale of the stake follows a 70% plunge in Alibaba’s share price that began in the fall of 2020 when Beijing halted the blockbuster IPO of its fintech arm Ant Group.
SoftBank’s announcement on Wednesday came just two days after Son unveiled the company’s worst quarterly loss of $23 billion and said it would undergo a “dramatic” period of cost cutting. SoftBank added that it was exploring the sale of other key assets, including Fortress Investment Group.
The loss for the April-June period followed a record loss in the previous quarter and prompted Son to make an eye-catching statement of regret over his previous triumphalism when tech markets were booming.
The lion’s share of SoftBank’s red ink was unrealized losses on stocks – listed and unlisted – in its two flagship tech portfolios, Vision Funds 1 and 2. The funds were hit hard by the global tech rout, although Son himself presented a chart showing that the Vision Fund’s listed shares underperformed the Nasdaq.
The maximum number of shares to be tendered represents about two-thirds of all Alibaba shares that SoftBank sold under prepaid forward contracts that remained outstanding as of mid-July.
This year, the Japanese group sold about a third of its stake in Alibaba through those forward deals to raise more than $21 billion in cash as Son worked to bolster SoftBank’s balance sheet.
SoftBank said the decision to exit the stock now was made to play “defense against the difficult market environment” and would address concerns about future cash outflows while reducing costs.
Deals struck with banks such as Goldman Sachs and UBS this year have seen SoftBank cash out its stake in Alibaba at prices slightly above the level at which Jack Ma’s group began trading in New York in 2014. SoftBank said its counterparties were hedging these trades when the trades were hit so that the current decision does not create additional selling pressure on Alibaba shares.
On several occasions in recent years, SoftBank has come under pressure from its investors to reduce its stake in Alibaba and reap the rewards of an investment as Son’s high-leverage and riskier strategies have weighed on the market. SoftBank balance sheet. Although the company cut its stake to raise capital for its 2016 purchase of British chip designer Arm, Son resisted a larger-scale sale.