SoftBank Prepares to Cash In on Long-Held Alibaba Stake

Min Jeong Lee and Anne VanderMey
Updated 4-min read
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(Bloomberg) -- SoftBank Group Corp. is moving to sell more of its stake in Chinese internet giant Alibaba Group Holding Ltd., unwinding the bet that spurred the Japanese company’s ambition to invest billions of dollars into startups.

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SoftBank offloaded around $7.3 billion in Alibaba shares this year through prepaid forward contracts, according to a Bloomberg analysis of regulatory filings. That follows the company’s sale of shares through similar contracts last year, which had lowered its stake to 13.7% at end-December. These contracts include the option to either hand over the stock or pay in cash and keep the shares.

Pummeled by losses on its bets on hundreds of startups, SoftBank has said it would prioritize financial discipline and has virtually halted new investments, with analysts speculating on what asset sales might be ahead.

The sales would reduce the Japanese conglomerate’s ownership of Alibaba to less than 4%, the Financial Times reported earlier, citing its analysis of the filings. SoftBank once owned about a third of the company, most of which came from an early $20 million investment in one of venture capital’s most famous bets.

A SoftBank spokesperson declined to comment on anything beyond the filings.

The move is the latest sign that long-time believers in China’s growth are lowering their exposure there, despite statements from Beijing that it welcomes foreign investment. Alibaba shares fell 2% in Hong Kong on Thursday, denting a stock recovery sparked by hopes that Beijing’s grip on tech firms might be easing. SoftBank shares fell 1% in Tokyo.

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Heavily-indebted SoftBank tapped its stake in Alibaba last year, cashing in on its most storied investment to help shore up finances amid uncertainty about Beijing’s stance on private enterprises.

The sale “reflects issues with SoftBank, rather than Alibaba, and has no bearing on Alibaba’s fundamentals, which are improving, or fair value, which is not a consideration for SoftBank,” said Vey-Sern Ling, managing director at Union Bancaire Privėe. “There will be pressure on Alibaba’s share price as always with such events, but it would be short-lived.”

Alibaba Selloff on SoftBank Plan Likely Short-Lived: Street Wrap

Alibaba, along with other technology companies, has come under intense scrutiny from the Chinese government in recent years. Last month, the online commerce leader said it plans to split its $240 billion empire into six units that will individually raise funds and explore initial public offerings, buoying its shares.

Once one of the world’s most aggressive tech investors, SoftBank shouldered billions of dollars of losses on its Vision Fund, which lifted valuations in startups worldwide with its big bets on hundreds of fledgling companies. It has since put a virtual halt on new investments.

It cut staff at its Vision Fund unit last year as it stopped actively chasing new investments. This week, SoftBank said it plans to sell its early-stage venture capital arm SoftBank Ventures Asia Corp., one of the avenues by which it scouted promising startups.

SoftBank’s billionaire founder Masayoshi Son has said he wants to focus his energies on a planned listing of its chip design unit Arm Ltd. later this year and make the debut “the biggest” in the history of the semiconductor industry. The re-listing of Arm, which had traded on the London exchange prior to SoftBank’s $32 billion acquisition in 2016, is expected to be a big windfall for the world’s biggest technology investor. Son has said Arm will probably go public on Nasdaq.

Other long-time China investors have been lowering their exposure in China. Tencent Holdings Ltd. plunged this week on signs that its largest shareholder Prosus NV may extend the selling of the Chinese tech firm’s stock.

SoftBank’s Alibaba stake has helped it secure financing for its Arm purchase and served to ease creditors’ concerns about its vast holdings in unproven startups. But its exposure to both Alibaba and Chinese technology companies has weighed on the Japanese investor, even as prospects of big investment gains dimmed.

Over the past 14 months, SoftBank brought in an average of $92 a share from the forward sales of 389 million Alibaba shares, the Financial Times said. That value is much less than the company’s all-time high of $317 a share.

SoftBank shares have also shed about 25% since it failed to announce a new share buyback program in November, a strategy that’s helped boost its stock price in the past.

“We think progress in the monetization of asset holdings would boost the chances of a buyback announcement,” said Citibank analyst Mitsunobu Tsuruo in a note to investors.

Read more: Alibaba Selldown Puts Focus on SoftBank Buyback

Last month, SoftBank transferred the bulk of its Alibaba holding to a wholly-owned subsidiary, saying it was to better manage the shares and for “future financing.”

--With assistance from Takahiko Hyuga, Jeanny Yu, Adrian Leung and Xiao Zibang.

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