SoftBank sold a large chunk of its stake in Alibaba to “instantly show” investors that its finances were strong after posting a record quarterly loss of $23 billion, the conglomerate’s chief financial officer said technological
In an interview with the Financial Times, Yoshimitsu Goto acknowledged that after years of playing down the possibility of any sudden, large-scale exit from his stake in the Chinese e-commerce giant, last week’s announcement of the sale of SoftBank it was abrupt
Goto dismissed market concerns that SoftBank’s continued losses could strain its relationship with lenders, but admitted that the sale of Alibaba shares was aimed at reassuring investors in what is one of Japan’s most leveraged companies.
“At times like this, it is critical as an investment group to instantly demonstrate that our financial strength is rock solid,” Goto said.
The Alibaba stake sale, which was accompanied by what some investors said was an inadequate explanation from SoftBank, led some to question whether it was really a move to address a looming financial emergency.
Just two days after reporting its worst ever quarterly performance, SoftBank revealed it would take a ¥4.6 trillion ($33.6 million) gain from selling Alibaba shares, significantly reducing investment in that founder Masayoshi Son built his name as one of the biggest in the world. technology investors.
Goto said the move was designed to mirror the earlier selloff of some of SoftBank’s most prized holdings that began when the Covid-19 pandemic caused its share price to plummet in March 2020; which included stakes in its domestic mobile unit and US carrier T-Mobile.
“Like two and a half years ago, we wanted to show the world that we can do something like this because we are financially resilient. This was our goal,” he said.
While the sale served to strengthen the company’s balance sheet, the decision to drastically reduce Alibaba’s stake carries the political risk of abandoning a Chinese investment at a sensitive time. China is in the midst of a regulatory crackdown on tech companies and diplomatic relations between Beijing and Tokyo are strained.
In 2020, SoftBank’s $41 billion asset sale funded the largest share buyback in Japanese history and paid down its huge debt load, helping boost investor confidence. The latest move to sell the Alibaba stake has boosted the group’s share price by 10 percent, but has also puzzled some analysts.
“SoftBank is reducing exposure to its largest asset when [Alibaba’s] shares are down 71% from their peak. It’s a very different message than the overly positive one we’ve gotten used to hearing over the years,” said Kirk Boodry, an analyst at Redex Research.
The sale of the Alibaba stake is being conducted through prepaid forward contracts, a type of derivative that SoftBank has increasingly turned to to raise immediate cash. Until recently, the company had stressed to investors that the contracts did not amount to a sale, as it retained the option to buy back the shares later.
But its decision to settle the deals early by giving up the option to keep the shares means SoftBank’s stake in Alibaba will shrink from 23.7% at the end of June to 14.6% when the liquidation is completed in September.
Among the concerns expressed by several investors and analysts after two consecutive quarters of big losses was that SoftBank risked defaulting on one of its financial covenants with its lenders. The pact states that the company must not report two consecutive years of losses. SoftBank posted a net loss of ¥1.7 trillion in the year to March 2022.
“Our decision has nothing to do with the financial pact. There are endless ways to approach the pact issue,” Goto said.
He added that the main reason for the early settlement of the Alibaba contracts was to remove any concern that the group would need additional cash in the future to buy the shares. “We wanted to send a clear message about our balance sheet,” Goto said.