SoftBank will gain $34 billion by reducing its stake in Alibaba – Business & Finance

TOKYO (Reuters) – SoftBank Group Corp said on Wednesday it would post a $34.1 billion gain from cutting its stake in Alibaba Group Holding, as the investment giant seeks to bolster its cash reserve to make in the face of the market slowdown.

SoftBank will reduce its stake in Alibaba to 14.6% from 23.7% by entering into prepaid futures. U.S.-listed Alibaba shares fell 1.7% in premarket trading after the announcement.

The conglomerate posted a $50 billion loss in its investment arm Vision Fund in the first half of the year as its tech bets deteriorated, with chief executive Masayoshi Son pledging on Monday to further curtail business. investment and reduce costs.

By settling Alibaba’s stock contracts, SoftBank “will be able to eliminate concerns about future cash outflows and additionally reduce the costs associated with these prepaid futures contracts,” he said. declared in a file.

“These will further strengthen our defense against the challenging market environment,” SoftBank added.

The estimated total gain of 4.6 trillion yen ($34.1 billion) includes 2.4 trillion yen from the revaluation of shares in the Chinese e-commerce giant and a derivative gain of 0.7 trillion yen, according to the filing. .

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Son bought Alibaba for $20 million in 2000 and the Chinese company’s growth to become one of the world’s largest e-commerce companies has helped boost its credentials as a tech investor.

But Alibaba has lost more than two-thirds of its value from late-2020 highs, hit by Beijing’s crackdown on the tech sector, which included a hefty fine on Alibaba and scrutiny of the founder’s business empire. Jack Ma.

The prepaid futures contracts settled correspond to a maximum of about 242 million U.S. depository shares of Alibaba, or about 9% of the Chinese company’s total outstanding shares.

“At first glance, this may be somewhat supportive (for Alibaba shares) due to greatly reduced fears of future surplus, but it’s not an outright positive,” said the Quiddity Advisors analyst, Travis Lundy, who posts on Smartkarma.

“The largest holder has sold almost half of its stake and some can make sense of that.”

The SoftBank transaction is not expected to result in any further sales of Alibaba shares in the market because the shares were hedged at the time of the initial monetization, SoftBank said, adding that it would “continue to have a good relationship with Alibaba.”

Ties between the two companies have weakened in recent years, with Ma leaving SoftBank’s board in 2020 and Son leaving Alibaba’s board the same year.

The Japanese billionaire, who has also bet on companies such as mouthpiece Didi Global, sought to highlight the shrinking relative size of Chinese tech in his portfolio after valuations were hit by regulatory measures and the rise US-China tensions.