SoftBank Group Corp is expected to book a gain of $34.1 billion by cutting its stake in Alibaba Group Holding, as the investment behemoth looks to shore up its cash reserve to weather the market downturn.
By settling forward contracts, the Japanese company will reduce its stake in Alibaba to 14.6% from 23.7%. Alibaba's US-listed shares fell by 1.3% in early trade.
In the first half of the year, SoftBank booked a $50 billion loss at its Vision Fund investment arm as its tech bets soured, with Chief Executive Masayoshi Son pledging to reduce investment activity and cut costs.
By settling the Alibaba share contracts, SoftBank will be able to eliminate any concerns about future cash outflows, and reduce costs associated with these prepaid forward contracts, it said in a filing.
These will strengthen our defence against the severe market environment. The filing shows a 4.7 trillion yen gain and a 0.7 trillion yen derivative gain of the Chinese e-commerce giant, and a 2.4 trillion yen gain of the Chinese e-commerce giant, which is estimated to have a total gain of 4.6 trillion yen $34.1 billion.
More than two-thirds of the value of the company fell from highs in late 2020, as the tech sector was hit by Beijing's crackdown on the company that included a fine on Alibaba and a scrutiny of founder Jack Ma's business empire.
At first glance, this may be supportive for the shares of Alibaba because of the reduction of fears of future overhang, but it is not an unmitigated positive, said Travis Lundy, a Quiddity Advisors analyst who publishes on Smartkarma.
The largest holder sold half of their stake and some may take meaning from that. SoftBank said it would continue to maintain good relationships with Alibaba and will not be affected by the SoftBank transaction as the shares were hedged at the time of the original monetisation. It is a mixed situation for the investors of Alibaba, if you are a long-term investor who believes in the future of the company. Bo Pei, analyst at US Tiger Securities said there will be some incremental near-term selling pressure at this point.
In recent years, the ties between the two companies have weakened, with Ma leaving SoftBank's board in 2020 and Son leaving the company's board in the same year.
The Japanese billionaire, who has also bet on ventures such as Ride-hailer Didi Global, has tried to emphasize the decreasing size of China tech in his portfolio after valuations were hit by regulatory action and increased US-China tensions.