SoftBank plans to sell US$14b in Alibaba shares

Tokyo

SOFTBANK Group Corp plans to sell about US$14 billion of shares in Chinese e-commerce leader Alibaba Group Holding Ltd as part of an effort to raise US$41 billion to shore up businesses battered by the coronavirus pandemic, according to people with knowledge of the matter.

The Japanese conglomerate is considering raising the remainder of the money by selling a stake in SoftBank Corp, its domestic telecommunications arm, as well as part of Sprint Corp following its merger with T-Mobile US Inc, said one of the people, who requested anonymity discussing private transactions. The Alibaba stake sale could range from US$12 billion to as much as US$15 billion, the people added.

SoftBank's shares surged as much as 21 per cent in Tokyo on Tuesday in their biggest intraday gain since listing, just days after marking a drop of roughly the same magnitude. The reversal comes as founder Masayoshi Son is finally doing what investors have been urging for years - using his stake in Alibaba for shareholder returns and to pay down debt.

Mr Son has set in motion his biggest play yet to silence critics, unveiling the unprecedented plan on Monday to unload 4.5 trillion yen (S$58.8 billion) of stock and alleviate investor concerns that at one point shaved more than 40 per cent off SoftBank's value from a February peak.

The company, which also operates the US$100 billion Vision Fund, is vulnerable to economic shocks given its enormous debt load and ties to unprofitable startups from WeWork to Oyo Hotels. Many of the Vision Fund's biggest bets lie in what's known as the sharing economy, which has been particularly hard-hit by a virus that's causing millions of people to stay indoors and slash travel spending.

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"The market sent a strong message and SoftBank has heeded it," Kirk Boodry, an analyst at Redex Holdings who writes for Smartkarma, said after Monday's announcement. "What's changed is that this will entail a meaningful sale of Alibaba stake with much of the proceeds going to shareholders," he added. "SoftBank has never done that before."

While SoftBank didn't specify which assets would be sold, its Alibaba stake is worth more than US$120 billion and makes up the largest chunk of unrealised value. It's unclear what timeframe SoftBank's looking at - its stock in Sprint and Hong Kong shares of Alibaba may be subject to lock-up periods: one year from listing in Alibaba's case and up to several years for Sprint, though certain conditions may allow earlier transfers and the company could employ special vehicles to get a deal done.

Alibaba's stock was up as much as 2.7 per cent, reversing early losses on Tuesday in Hong Kong.

An Alibaba spokesperson didn't respond to an emailed request for comment. SoftBank spokespeople in Tokyo and the US declined to comment.

The Japanese company's envisioned asset sale would almost match its entire market value last week. Part of the proceeds would go toward a new share buyback programme of as much as two trillion yen that comes on top of previously announced repurchases.

The scale of the endeavour surprised investors and sent SoftBank soaring. Yet even after Monday's and Tuesday's combined gain, the stock remains down about 33 per cent from its 2020 peak, underscoring persistent concerns that tumbling technology sector valuations will damage Mr Son's debt-laden company.

The coronavirus-triggered rout has spread to credit markets and sparked a surge in the cost of insuring debt against default - including that of SoftBank, whose credit-default swaps touched their highest level in about a decade. Apollo Global Management, the alternative asset management house co-founded by Leon Black, has placed a short bet against bonds issued by SoftBank because of its tech exposure, according to the Financial Times.

Alibaba, Sprint and SoftBank Corp are worth as much as US$190 billion combined, estimates Atul Goyal, senior analyst at Jefferies Group. But Mr Son will want to keep at least a 50 per cent stake in the domestic telecom unit because it's the only cash-generating asset and its dividends help pay for SoftBank's interest on debt, he wrote. And since Sprint is going through a merger with T-Mobile, most of the funds will initially have to come from Alibaba, he said.

"This buyback is music to our ears," Mr Goyal added. "But the timing of this announcement is not ideal. We would have ideally preferred such an announcement from a position of strength and not because the SBG stock came under tremendous pressure." BLOOMBERG