SoftBank sold Alibaba shares to reassure investors, finance chief admits

SoftBank sold a large part of its stake in Alibaba to “instantly show” investors its finances were solid after logging a record quarterly loss of $23bn, the technology conglomerate’s chief financial officer has said.

In an interview with the Financial Times, Yoshimitsu Goto acknowledged that after years of playing down the possibility of any sudden, large-scale exit from its stake in the Chinese ecommerce giant, SoftBank’s announcement of the sale last week was abrupt.

Goto dismissed market concerns that SoftBank’s continued heavy losses could strain its relationship with lenders, but admitted that the Alibaba share sale was intended to reassure investors in what is one of Japan’s most highly leveraged companies.

“In times like this, it is critical as an investment group to instantly show that our financial strength is rock solid,” Goto said.

The Alibaba stake sale, which was accompanied by what some investors said was inadequate explanation from SoftBank, prompted some to question whether it was actually a move to address a looming financial emergency.

Only two days after reporting its worst quarterly performance, SoftBank revealed that it would post a gain of 4.6tn ($33.6bn) by selling shares in Alibaba, significantly reducing the investment on which founder Masayoshi Son built his name as one of the world’s greatest technology investors.

Goto said the move was designed to mirror the previous sale of some of SoftBank’s most prized holdings which began when the Covid-19 pandemic led to a crash in its share price in March 2020; that included stakes in its domestic mobile unit and US carrier T-Mobile.

“Just like two years and a half ago, we wanted to show the world that we can do something like this because we are financially resilient. That was our objective,” he said.

Although the sale served the need to shore up the company’s balance sheet, the decision to sharply reduce the Alibaba stake comes with the political risk of being seen to abandon a Chinese investment at a sensitive time. China is in the throes of a regulatory crackdown on tech companies and diplomatic relations between Beijing and Tokyo are strained.

In 2020, SoftBank’s $41bn asset sale funded the largest share buyback in Japanese history and paid down its enormous debt load, helping to improve investor confidence. The latest move to sell Alibaba’s stake has boosted the group’s share price by 10 per cent, but also left some analysts perplexed.

“SoftBank is reducing exposure to its largest asset when [Alibaba’s] shares are down 71 per cent from their peak. It is a far different message than the super-positive one we have become used to hearing over the years,” said Kirk Boodry, analyst at Redex Research.

The sale of the Alibaba stake is being carried out through prepaid forward contracts, a type of derivative to which SoftBank has increased turned to raise immediate cash. Until recently, the company had stressed to investors that the contracts did not amount to a sale since it retained the option to buy back the shares later.

But its decision to settle the deals early by relinquishing the option of retaining the shares means SoftBank’s stake in Alibaba will reduce from 23.7 per cent at the end of June to 14.6 per cent when the settlement is completed in September.

Among concerns expressed by several investors and analysts following two consecutive quarters of large losses was that SoftBank risked a breach of one of its financial covenants with its lenders. The covenant states the company must not report two consecutive years of losses. SoftBank suffered a 1.7tn net loss in the year to March 2022.

“Our decision has nothing to do with the financial covenant. There are countless ways for us to address the covenant issue,” Goto said.

He added that the main reason for the early settlement of Alibaba contracts was to remove any concern the group would need additional cash in future to buy back the shares. “We wanted to send a clear message regarding our balance sheet,” Goto said.

Video: SoftBank: piecing the puzzle together | FT Film