SoftBank set to unload US$7.9 billion of its shares in Alibaba

Sale cuts stake of the e-commerce giant’s biggest investor to 28 per cent from 32.2 per cent

PUBLISHED : Wednesday, 01 June, 2016, 6:26am
UPDATED : Wednesday, 01 June, 2016, 8:19pm

Japanese conglomerate SoftBank Group Corp, the largest stakeholder in Alibaba Group, plans to sell at least US$7.9 billion of its shares in the Chinese e-commerce giant to raise fresh capital to cut down its debt and pursue new investments.

This initiative marks SoftBank’s first sale of Alibaba stock since its initial investment in the Hangzhou-based company in 2000.

In a statement on Wednesday, New York-list Alibaba said it has agreed to buy US$2 billion of its shares from SoftBank using cash on hand.

Members of the Alibaba Partnership, which is composed of executive chairman Jack Ma Yun and the company’s other co-founders, have also made a collective deal to acquire an additional US$400 million of Alibaba shares from SoftBank.

Those two transactions were made in conjunction with SoftBank’s launch yesterday of its new Mandatory Exchangeable Trust, which will offer in a private placement US$5 billion in securities exchangeable into Alibaba shares in three years, according to Alibaba.

In addition, SoftBank said it has agreed to sell US$500 million of Alibaba shares to “a major sovereign wealth fund, pursuant to an exemption from registration under the US Securities Act”.

“As SoftBank looks to strengthen its own balance sheet, Alibaba determined that it was the best use of our capital to reinvest in our own business through an efficient buyback of a large number of shares in our own company that is accretive to our stockholders,” Ma said.

SoftBank’s shareholding in Alibaba will be reduced to 28 per cent from 32.2 per cent as of March 31, following the completion of its divestment.

Shares of Alibaba were down 2.83 per cent in extended trading in the United States on Tuesday after SoftBank announced its divestment plan.

Alibaba’s share price closed up 1.27 per cent to US$82, but fell 2.83 per cent to US$79.68 in after-hours trading in New York.

Both SoftBank and Alibaba said they are committed to their longstanding alliance, while the Tokyo-based company moves to pay down its interest-bearing debt and target new investments.

“When I first met Jack Ma, I knew immediately he had the vision and passion to build the world’s leading e-commerce company, and I was very happy to invest alongside him to help him realise his ambition,” SoftBank chairman and chief executive Masayoshi Son said. “There are huge opportunities ahead for Alibaba, and SoftBank looks forward to the continued partnership.”

The timing of SoftBank’s divestment, however, has come at a sensitive period for Alibaba. The world’s largest e-commerce services company last month disclosed that it was being investigated by the US Securities and Exchange Commission over its accounting practises.

“We believe the SEC is reviewing Alibaba’s procedures and policies in general, and not investigating any particular deal,” Tsang Chi, HSBC’s head of internet research, said in a report.

A research note by Stifel Financial Corp said the SoftBank sale was not a shift in confidence by a major investor, but one that “could remove an overhang of expectation of such an event”.

Alibaba owns the South China Morning Post.