TOKYO, April 16 (Reuters) – SoftBank Group Corp (9984.T) said on Wednesday that it would book a $34.1 billion profit by selling its stake in Alibaba Group Holding (9988.HK), as the investment behemoth seeks to shore up its cash reserves in the face of a market downturn.
By settling prepaid forward contracts, the Japanese company will reduce its stake in Alibaba from 23.7% to 14.6%. In early trade, Alibaba’s US-listed shares were down 1.3%.
SoftBank’s Vision Fund investment arm lost $50 billion in the first half of the year as its tech bets soured, with Chief Executive Masayoshi Son vowing on Monday to further reduce investment activity and cut costs.
By settling the Alibaba share contracts, SoftBank “will be able to eliminate concerns about future cash outflows, and furthermore, reduce costs associated with these prepaid forward contracts,” it said in a filing. “These will further strengthen our defence against the severe market environment.”
According to the filing, 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.
Son invested $20 million in Alibaba in 2000, and the Chinese firm’s rise to become one of the world’s largest e-commerce companies aided his tech investor credentials.
However, Alibaba has lost more than two-thirds of its value since its peak in late 2020, owing to Beijing’s crackdown on the tech sector, which included a hefty fine for Alibaba and an investigation into founder Jack Ma’s business empire.
“At first glance, this may be somewhat supportive (for Alibaba shares) because of substantially reduced fears of future overhang, but it is not an unmitigated positive,” said Quiddity Advisors analyst Travis Lundy, who publishes on Smart karma. “The largest holder sold nearly half their stake and some may take meaning from that.”
The Softbank transaction is not expected to result in additional market sales of Alibaba shares because the shares were hedged at the time of the original monetisation, according to SoftBank, who added that it would “continue to maintain a good relationship with Alibaba.”
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