Shares of Alibaba plunged on Thursday after a report that SoftBank Group has moved to sell most of its remaining shares in the Chinese conglomerate.
Alibaba stock plunged by more than 5% in Hong Kong today, before paring the loss to about 2% at the close of trading.
SoftBank will reduce its key stake in the Chinese e-commerce giant from close to 15% to under 4%, according to a report by the Financial Times.
The news comes as no surprise given the Japanese group has been hammered by huge multi-billion-dollar losses from some of its failed stock investments and the market downturn in recent months.
Chinese tech giants under pressure
The sale comes as valuations of China’s big tech firms have started recovering this year after two years of heightened regulatory scrutiny, providing a window for long-time investors such as SoftBank to reduce exposure to an economy battered by strict pandemic policies and Sino-US tension.
SoftBank’s share price slipped close to 1% on Thursday, while the Nikkei edged up by 0.26%.
The Japanese tech investor, led by billionaire Masayoshi Son, has sold $7.2 billion of Alibaba shares this year through pre-paid forward contracts after a $29-billion selldown last year, the FT said.
The forward sales, revealed through a Financial Times analysis of regulatory filings sent by post to the US Securities and Exchange Commission, will eventually cut SoftBank’s stake in the $262 billion Chinese e-commerce group to just 3.8%.
That followed a 5.2% plunge on Wednesday for Tencent Holdings after the social media giant’s top shareholder, the Netherlands’ Prosus NV, said it may sell more of its shares, underscoring selling pressure on Chinese tech names.
SoftBank has been seeking ways to monetise its stake in Alibaba, which the Japanese conglomerate bought into more than two decades ago with an outlay of just $20 million.
“They (SoftBank) have been clear that … they need to monetise profitable holdings,” Jon Withaar, head of Asia special situations at Pictet Asset Management, said.
“Perhaps some expected that they may slow the pace of their selling in (Alibaba) now that their Arm IPO is moving closer to completion, but ultimately everything they are doing is within the scope of what they have told the market.”
Arm listing could raise $8 billion
SoftBank aims to list British chip designer Arm this year in an initial public offering (IPO) that would raise at least $8 billion, people familiar with the deal said last month.
SoftBank said the transactions reflected a shift to a “defensive mode” to address the uncertain business environment and that it would provide details in its quarterly earnings results announcement in May, the British newspaper reported.
Neither SoftBank nor Alibaba responded to requests for comment. Alibaba’s US-listed stock fell 1.3% in after-market trade on Wednesday.
“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,” SBI Securities analyst Shinji Moriyuki said.
“It is well within the realms of expectations that the proportion of Chinese shares among its total investment will shrink further.”
SoftBank booked a $34-billion gain last year by cutting its Alibaba stake to 14.6% from 23.7%, as the firm sought to shore up cash reserves amid steep losses incurred by its Vision Fund.
Vision Fund, which upended the tech world with big bets on startups, posted a staggering 8 trillion yen ($60 billion) loss in calendar 2022 as market turmoil slashed portfolio firms’ valuations, prompting SoftBank to raise cash.
At the time, it also used prepaid forward contracts – a type of derivative contract that allows investors to hedge risk.
Alibaba has lost more than two-thirds of its value from highs touched in late 2020, hit by increased regulatory action in the technology sector that included a record fine on Alibaba and scrutiny of founder Jack Ma’s business empire.
- Reuters with additional editing by Jim Pollard