SoftBank proceeds from Alibaba selldown rise to US$10b

[TOKYO] SoftBank Group Corp increased the amount of money it will raise from selling down its stake in China's Alibaba Group Holding Ltd to US$10 billion, after exercising an option to dispose of more shares through a trust.

That's up from a previous figure of US$8.9 billion, which was itself raised by US$1 billion from an initial announcement earlier this week. SoftBank is selling shares in China's largest e-commerce company for the first time since first buying in about 16 years ago, as it looks for new investments in promising startups and strengthens a balance sheet that carries a debt load of 11.9 trillion yen (S$151.4 billion).

The cash infusion will allow SoftBank founder Masayoshi Son to whittle down that debt and grant his company the flexibility to pursue acquisitions, offsetting the burden imposed by a costly but underperforming investment in unprofitable US wireless carrier Sprint Corp.

"The balance sheet of Softbank has deteriorated since the purchase of Sprint," said Hideki Yasuda, an analyst at Ace Research Institute in Tokyo.

"Even if Son wants to do a huge M&A deal, he won't be able to until he's done with Sprint's turnaround."

"Also, it wouldn't be a good idea to divert resources to somewhere else."

SoftBank is raising US$10 billion selling shares through a trust as well as offloading stock to Alibaba and other investors.

An option to buy up to an additional 20 per cent, or US$1.1 billion, of trust securities exchangeable for Alibaba shares has been exercised in full, the Japanese company said in a statement Friday. That brings the total raised via the sale of such securities to US$6.6 billion.

Alibaba is also paying US$74 a share to buy back US$2 billion of its own stock from SoftBank, which will also sell stakes worth US$500 million apiece to two state-owned investment firms in Singapore at the same per-share price, Alibaba and SoftBank said.

Another US$400 million of stock will go to the Alibaba Partnership of senior executives.

President Nikesh Arora is now leading an effort to re-examine the company's portfolio that will probably include further asset sales, a person familiar with the matter has said.

It's in talks to shed its investment in Finnish game-maker Supercell Oy, people familiar with the matter have said. SoftBank has also decided that games aren't a core business, a person familiar with the situation has said.

SoftBank plans to sell shares it owns in GungHo Online Entertainment Inc, the Tokyo-based online and mobile-game maker said in a statement late Friday. Gungho agreed to buy back 73 billion yen in stock at about 294 yen a share in a tender offer, 2.6 per cent less than the closing price Friday.

Mr Son has split SoftBank into domestic and overseas units, entrusting Mr Arora with operations abroad and the search for the next Alibaba. Mr Son started his investment in Alibaba with US$20 million in 2000 and now owns 32 per cent of the Chinese company, although that will decline following the share sale.

SoftBank's move to sell assets and reduce debt has some bondholders wary of the risk that Mr Son will use the cash for another acquisition.

The Japanese wireless carrier's total debt has soared 5.6 times in the past four years following its purchase of Sprint, which has suffered seven straight years of losses and has US$10 billion of liabilities coming due in the next three years.

While SoftBank's 2020 dollar bonds rallied Friday to a three-year high and its bond risk has more than halved in the past four months, it still has about a 0.4 per cent chance of non-payment in the coming year, based on the Bloomberg Default-Risk Model, which considers factors such as share prices and debt.

SoftBank shares slipped 0.4 per cent to 6,020 yen Friday. Hiroe Kotera, a spokeswoman for the company in Tokyo, reiterated that proceeds from the deal will be used for the repayment of interest-bearing debt as well as other general corporate purposes, declining to comment further.

BLOOMBERG