SoftBank raises $22 billion to sell its stake in Alibaba

SoftBank has raised up to $22 billion in cash through deals that would significantly reduce its stake in Alibaba over the next few years as the Japanese investor reacts to a market downturn that has ravaged its tech portfolio.

The group, led by billionaire founder Masayoshi Son, this year sold about a third of its stake in Alibaba through prepaid futures – a type of derivative that SoftBank has increasingly moved towards. no longer turned to raise funds immediately while retaining the possibility of keeping the shares.

SoftBank has now sold more than half of its holdings in Alibaba through these forward sales. This could reduce its stake in the Chinese e-commerce giant below the threshold of retaining its seat on the board of directors and prevent the Japanese group from accounting for its share of Alibaba’s revenue in its financial statements.

If SoftBank chooses not to buy back Alibaba shares, it would mark the end of an era. Son built his fortune leading a $20 million funding round for Jack Ma’s fledgling e-commerce startup more than two decades ago, generating a huge return on investment.

“At one point, Alibaba made Jack Ma the richest man in China and Masa the richest in Japan – this has enabled all of his subsequent investment adventures,” said Duncan Clark, chairman of the firm of BDA China technology consultancy based in Beijing. “Whether [Son’s] Selling him now shows his mindset towards China and the pressure he is under.

SoftBank has raced to raise funds this year as its dozens of investments in the Vision Fund collapsed amid a sell-off in the tech stock market. Son promised investors he would play “defense” in May after disclosing a $27 billion investment loss for his Vision Fund in the previous financial year.

Redex Research analyst Kirk Boodry said losses continued to mount in the quarter through the end of June, adding scrutiny to SoftBank’s high standalone debt level, which he said nearly doubled in the past 18 months to 12.1 billion yen ($92 billion) at the end of March. Its cash position stood at 3.9 billion yen.

SoftBank stressed that it retained the right to repurchase Alibaba shares, but added that the transactions allow the group to “raise capital in advance” while “protecting against stock declines”.

The company also said it had scaled back new investments and was focused on “increasing our cash position in this uncertain market environment.” He made similar financing using his stakes in T-Mobile and Deutsche Telekom.

Daniel Taylor, a corporate finance expert at the Wharton School, said few people noticed the sales because “disclosures are hard to come by.” But the result could be that the market will be flooded with Alibaba shares as the deals expire over the next two years.

Alibaba stock futures sold by SoftBank in June

Forward sales of 213 million shares of Alibaba shares this year have been made with banks including Goldman Sachs, Mizuho and UBS, and in most cases are delaying the final handover of shares by two years, according to documents seen by the Financial Times.

The Japanese group retains the voting rights of the shares until their maturity and has the option of settling the contracts in cash instead of shares. Some of the trades set minimum or maximum share prices to settle the trades.

Since October, SoftBank has sold 40 million Alibaba shares to settle deals made in previous periods, reducing its stake in the company from 24.8% to 23.9% in mid-July.

The record pace of futures sales this year, involving more stocks than in the previous three years combined, means SoftBank may have leveraged more than 80% of its Alibaba holdings in derivatives deals or the pledging of shares as collateral for margin lending, according to FT estimates.

“Alibaba is their only liquid asset, they don’t have any other significant liquid assets,” Jefferies analyst Atul Goyal said. “They’ve already sold SoftBank Corp, which is a subsidiary, [down] at 40%, so any further reduction will remove it as a subsidiary.

Flow chart showing SoftBank's creative financial engineering in the year to March 31

But Son is cashing in much of his stake in Alibaba at multi-year lows. SoftBank in April, for example, sold 50 million shares at prices slightly above where the Chinese group’s shares closed on the first day of trading in 2014, according to documents provided by data firm The Washington Service.

By the end of March, SoftBank had separately pledged 164 million Alibaba shares as collateral for $6 billion in loans. The group was forced to repay billions of dollars in borrowings secured by the block of shares as Alibaba’s stock price crashed over the past two years, according to filings.

The sale of Alibaba is part of SoftBank’s effort to diversify its holdings, with the Chinese group accounting for just 23% of its total value at the end of March, compared to 60% in 2020. During this period, SoftBank raised $30 billion. in advance. sales of Alibaba, superimposing the expansion of its portfolio on complex financial engineering.

Some of the money raised was funneled into the band’s second Vision Fund, which failed to attract outside funds.

The fund had invested $48 billion in 250 companies by the end of March. Most companies remain private, and Son has leveraged the portfolio for more than $5 billion in loans.

In June, a shareholder asked Son if any firm among the 475 in SoftBank’s stable would eclipse Alibaba in years to come.

“Maybe one or two. If it goes well, three,” he said. “But one or two, if they become such a hit, then that’s going to give us a return for everything.”

Antoni Slodkowski and Robert Smith contributed reporting

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