SoftBank is taking steps to reduce its remaining stake in Alibaba, limiting its exposure to the Chinese market and raising funds due to the declining value of its technology investments amidst the market downturn. The Japanese conglomerate, headed by billionaire founder Masayoshi Son, has divested approximately $7.2 billion worth of Alibaba shares this year, following last year's record $29 billion sell-off.

  • These sales, which were uncovered through an analysis of regulatory filings by the Financial Times sent to the US Securities and Exchange Commission, will eventually reduce SoftBank's ownership in the $262 billion Chinese e-commerce giant to just 3.8 percent.
  • While the contracts provide SoftBank with the option to repurchase the shares, the company has traditionally settled previous deals by transferring the stock. SoftBank once held as much as 34 percent of Alibaba.

Selling On The Cheap

SoftBank's decision to sell its Alibaba holdings comes as the Chinese firm's shares have reached their lowest levels in six years, marking an unfortunate conclusion to what was once considered one of the most successful technology investments ever made. Masayoshi Son initially invested $20 million in Alibaba more than two decades ago when the company was in its infancy, with founder Jack Ma lacking a clear business plan, significant revenue, and a small team. Son's investment was driven by his belief in Ma's charisma and leadership.

  • However, Jack Ma's outspoken nature became a liability in October 2020 when he criticized China's state-owned banks at a financial summit in Shanghai.
  • In response, Beijing suspended the highly anticipated IPO of Alibaba's sister company, Ant Group, as part of President Xi Jinping's campaign to exert control over the country's tech companies.
  • This regulatory crackdown led to a 70 percent decline in Alibaba's share price, with SoftBank selling most of its holdings at prices equivalent to Alibaba's opening price on its first day of trading in New York eight years ago.

Over the past 14 months, SoftBank has generated an average of $92 per share from the forward sales of 389 million Alibaba shares, significantly lower than the company's all-time high of $317 per share. SoftBank's most recent sale involved the divestment of approximately 46 million shares, yielding around $4.5 billion in February, following the sale of 30 million shares for $2.7 billion in late December. SoftBank noted that the latter sale was not fully completed by the end of December and would be accounted for in its upcoming financial report for the quarter ending on March 31.

Bolstering Its Finances... And Earnings

SoftBank declined to comment on the regulatory filings but explained that the Alibaba transactions reflect its shift toward a defensive posture in response to an increasingly uncertain business environment. The company is focused on bolstering its financial stability by increasing its available cash. SoftBank intends to disclose the additional amount raised from Alibaba shares when it reports its fourth-quarter results in May.

  • While SoftBank has stated that its monetization of Alibaba shares is aimed at shoring up its financial position, some investors view it as a desperate attempt to improve its earnings figures, with analysts predicting a second consecutive year of substantial losses.
  • SoftBank has reinvested the proceeds from the Alibaba divestment into its Vision Fund II, paid off debt, and repurchased shares. Billions are also accumulating on its balance sheet, which reached ¥5.8 trillion ($43 billion) at the end of December, leading to internal discussions on how to utilize the funds.

SoftBank has emphasized that it will continue to be selective in its investments, citing the uncertainty of market conditions. There are differing opinions within the company on whether to maintain a defensive stance or re-enter investments, with executives increasingly considering the possibility of resuming investments.

Disclaimer

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