Business· Equity

Softbank selling Alibaba as part of asset sales to raise USD 41 bln cash

minutes 2020/03/24 04:04:01
Softbank, Alibaba, asset sales, fundraising

Mar 24, 2020 (China Knowledge) - Softbank is planning asset sales amounting to USD 41 bln, with its majority stake in Alibaba Group (BABA) as the core in the portfolio put up in the market. This is certainly at the top of Softbank’s list of assets for sale that could pressure Alibaba’s shares price in current depressed market.

Just six weeks ago, Masayoshi Son, founder and chairman of SoftBank, touted the value of SoftBank Group and dismissed talk of a sale on his stake in Alibaba Group.

But, now things are changing fast. Softbank made a surprise statement on yesterday that it plans to sell up to JPY 4.5 trln (USD 41 bln) worth of assets next year to fund a JPY 2 trln shares buyback program, repay debts and repurchase bonds.

It will be a mega sale. Mr. Son's most likely source of funding for the next few years replies on his Vision Fund valued at USD 100 bln. However, because of the global stock market crashes during the pandemic outbreak, exacerbated by costly investment in the office sharing giant WeWork, it will be a huge challenge to buffer its cash outflow for Softbank in the short term.

Seemingly, Softbank faces not one or two challenges, but a series of them. Equity investors are certainly aware of this, and have driven Softbank's stock price down 45% from its peak in February.

Further excruciating the pain, share price of Alibaba has fallen 23% from record high on Jan 13. Softbank's 25.2% stake in Alibaba is now worth at least USD 33 bln lesser than it was in mid-January. Alibaba is not only Softbank's largest asset, but also the main source of net profit and cash flow.

While Mr. Son has proudly pointed out Alibaba stocks' ‘A+’ credit rating and generating JPY 900 bln (USD 8.2 bln) of free cash flow in the second half of last year. But not one cent has gone to Softbank, which Alibaba does not pay any dividends, even to its largest shareholder, Softbank.

In order to monetize its stake in Alibaba, Softbank has resorted to use these shares as collateral for margin loans. In Q4 last year, Softbank increased its lending by collateralizing its Alibaba shares for USD 4.4 bln, to up to more than JPY 1 trln in total. Now, however, with global markets suffering their worst sell-off in decades, wary creditors may be afraid to accept more shares as collateral.

If Mr. Son wants to complete the fundraising - a USD 41 bln asset sale - he may need to "eat humble pie" and give up at least part of Alibaba.

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