SoftBank expects to post a gain of more than $34bn by turning over a chunk of its holdings in the Chinese ecommerce group Alibaba, marking a historic shift in the Japanese group’s relationship with its best-known investment.
SoftBank had made a series of complex derivative deals that allowed it to raise cash while retaining the option to buy back the Alibaba shares later. But the company said on Wednesday that right would now be fully relinquished with many of the deals settled early with shares.
The move by SoftBank marks a definitive step back from the 22-year-old bet on which Masayoshi Son built his name as one of the world’s greatest technology investors.
The decision, which investors said suggested there could now be further selldowns to come, means that SoftBank’s stake in Alibaba will drop from its 23.7 per cent holding at the end of June to 14.6 per cent by the time the settlement process is completed in September.
The reduced stake in Alibaba will take SoftBank below the threshold for retaining its board seat at the Chinese ecommerce group and prevent the Japanese group from continuing to recognise its share of Alibaba’s income in its financial statements.
It will also void a voting agreement with Alibaba vice-chair Joe Tsai which required SoftBank to vote its shares at the direction of Jack Ma, Tsai and other top executives.
The selldown in the stake follows a 70 per cent slump in Alibaba’s share price that began in the autumn of 2020 when Beijing halted the blockbuster initial public offering 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 $23bn and said it would undergo a period of “dramatic” cost-cutting. SoftBank added that it was exploring the sale of other key assets, including Fortress Investment Group.
The loss posted for the April to June period followed a record loss in the previous quarter, and prompted Son to make an eye-catching statement of regret at his previous triumphalism when tech markets were booming.
The lion’s share of SoftBank’s red ink was unrealised losses on the stocks — both listed and unlisted — in its two flagship technology portfolios, Vision Funds 1 and 2. The funds were hit hard by the global technology rout, though Son himself presented a chart showing that listed Vision Fund stocks had underperformed the Nasdaq.
The maximum number of shares set to be handed over represents about two-thirds of all the Alibaba shares SoftBank has sold into prepaid forward contracts that remained outstanding in mid-July.
This year the Japanese group sold about one-third of its Alibaba stake through these forward deals to raise more than $21bn in cash as Son worked to strengthen SoftBank’s balance sheet.
SoftBank said the decision to relinquish the shares now was taken to play “defence against the severe market environment” and would resolve concerns about future cash outflows while cutting costs.
The deals struck with banks such as Goldman Sachs and UBS this year have seen SoftBank cash in its Alibaba stake at prices slightly higher than the level where Jack Ma’s group began trading in New York in 2014. SoftBank said its counterparties hedged those transactions when the deals were struck so the current move would not create additional selling pressure on Alibaba’s stock.
At various times in recent years, SoftBank has come under pressure from its investors to reduce the stake in Alibaba and reap the rewards of an investment when Son’s highly leveraged, riskier strategies have strained the SoftBank balance sheet. Although the company trimmed its stake to raise capital for its 2016 purchase of the UK chip designer Arm, Son has resisted a larger-scale selldown.