SoftBank announces the sale of nearly all its stake in Alibaba

SoftBank Group Corp, a technology investor based in Japan, has announced the sale of nearly all its stake in Alibaba Group Holding. The sale triggered a massive plunge in the stock of the e-commerce company.

Alibaba shares plunge as SoftBank sells stock

The sale of the company’s stock comes after a remarkable recovery in the valuations of large tech companies in China after the country eased its COVID restrictions. The recovering Chinese economy has presented an opportunity for investors such as SoftBank to reduce their exposure to China stocks.

The share price for SoftBank has dropped by 0.97% in the last 24 hours. On the other hand, Alibaba stock is down by 1.98% in the last 24 hours. The drop in Alibaba’s share value came after Tencent Holdings also hiccupped after the top shareholder at the company, Proxus NV, announced that the company could sell additional shares.

SoftBank has been looking for ways to monetize its stake in Alibaba after investing in the company for over two decades and spending $20 million. Therefore, the sale of Alibaba’s stake was within the scope of what the company had informed investors.

SoftBank is planning to list the British chip designer known as Arm through an initial public offering (IPO) that will raise more than $8 billion for the company. A report by the Financial Times said that forward sales, as shown on filings with the US Securities and Exchange Commission (SEC), showed that the stake held by SoftBank in Alibaba would plunge to 3.8% from nearly 15%.

SoftBank is spearheaded by billionaire founder Masayoshi Son, who sold around $7.2 billion of Alibaba shares during the year using prepaid forward contracts. According to SoftBank, the transactions demonstrated a shift to defensive mode and addressed an uncertain business environment. The company was also required to provide more information on the quarterly earnings results.

In 2022, SoftBank secured a $34 billion gain after trimming its Alibaba stake from 23.7% to 14.6%. At the time, the firm was looking to raise cash reserves needed amid an increase in losses on its Vision Fund. The company used prepaid forward contracts to allow investors to hedge against risks.

Changes in China’s tech industry

SBI Securities analyst, Shinji Moriyuki, commented on the sale, saying, “China’s regulatory environment in the internet sector turned drastically tougher in recent years, and this is SoftBank simply responding to the changing environment, as it has already been doing. It is well within the realms of expectations that the proportion of Chinese shares among its total investment will shrink further.”

Alibaba also lost over two-thirds of its value from the highs it created towards the end of 2020. The decline has been attributed to the increased regulatory action in the tech industry, including a heavy fine imposed on Alibaba and the scrutiny of Jack Ma’s business sector.

The Chinese company has also said that it has plans to be subdivided into six units and to explore the listings and the fundraisings for most of these assets. This marks the biggest restructuring that the company has done in its 24-year history.