1. Business
February 7, 2022

Tough break, Son: SoftBank looks to sell Alibaba shares as Arm deal bogs down

Alibaba registered one billion American depositary shares (ADS) on Friday, in a sign that a troubled SoftBank may be selling its shares in the Chinese tech giant.

By Giacomo Lee

Alibaba Group registered one billion American depositary shares (ADS) on Friday, leading to speculation that a troubled SoftBank may be selling its shares in the Chinese tech giant.

Alibaba’s weekend filing with the US Securities and Exchange Commission (SEC) anticipates an earnings call from SoftBank Group on its 2021 third quarter (Q3). The results, due to be announced Tuesday, are expected to underline a gloomy outlook for Masayoshi Son’s Japanese conglomerate.

Monday saw Alibaba shares on Hong Kong’s Hang Seng index fall by as much as 4.7% following news of the SEC filing. Q3 2021 had already seen Alibaba shares drop by 16% on the Hang Seng, wiping $150bn off its market value and providing another portfolio setback for SoftBank. Investments from the SoftBank Vision Fund into DiDi, DoorDash and WeWork lost 36%, 28% and 14% of their original value respectively in Q3.

SoftBank has also lost out in revenue following its bogged-down sale of Arm to Nvidia, a $40bn deal that has faced various regulatory tussles. According to senior GlobalData analyst Michael Orme, the Arm saga is likely to be the catalyst for the weekend filing.

“At base this is all about the evaporation of a $40bn payday for Softbank’s Masayoshi Son now that it seems clear Nvidia will be thwarted by one regulator or another from taking Arm off his hands,” says Orme. “It’s now considered on Wall Street to be a stone cold racing certainty that the deal will be kiboshed or timed out. 

“Son sorely needs the cash as he tries to weather what he called a ‘blizzard’ three months ago. He now faces the likely option of having to find another purchaser for Arm or float it on the UK or US stock exchange.

“The chances in either case of raising more than $40bn are slim, hence the indications of a large disposal of Softbank’s huge Alibaba holding to raise cash which has boosted Softbank’s shares ahead of quarterly results to be announced in Tokyo tomorrow.”

Alibaba remains SoftBank’s most valuable holding, with a market cap of $335.61bn according to GlobalData. As reported by Bloomberg, a large portion of SoftBank’s holdings in the company are not registered as ADS as it had backed Alibaba before its IPO on the New York Stock Exchange in 2014.

The Bloomberg report cites Citigroup’s belief that the Alibaba move will allow stockholders whose shares have never been registered with the SEC the flexibility to sell their shares.

SoftBank owns 5.39 billion ordinary shares of Alibaba in total, which Citigroup calculates as equivalent to 673.76 million ADSs, or a 24.8% stake. Alibaba registered about 2 billion ADSs when conducting its IPO.