On August 10th, Alibaba shareholder Softbank announced that its board of directors agreed to settle up to 242 million forward contracts of Alibaba ADR, with an estimated total transaction revenue of 4.6 trillion yen, or about 230.29 billion yuan, with a shareholding ratio of 4.6 trillion yen. fell to 14.6%.
SoftBank said in the announcement that the contracts were entered into by SoftBank using some of its Alibaba stake to raise funds. Such contracts may be cash-settled in exchange for shares delivered at the conclusion of the contract, or share-settled to retain cash received at the conclusion of the contract. The prepaid forward contracts announced by SoftBank Group to be settled early this time involve about 242 million Alibaba American depositary shares, accounting for about 9% of Alibaba’s total issued shares.
According to SoftBank Group’s public disclosure, the above-mentioned share settlement will begin in mid-August 2022 and is expected to be completed by the end of September 2022. SoftBank Group expects that these prepaid forward contracts are settled by shares, which will not lead to the counterparties of financial institutions to sell additional Alibaba shares to the market, because the Alibaba shares involved in these prepaid forward contracts have already been sold when the above-mentioned realisation transaction occurs. Hedged in the counterparty market.
According to public information, when Alibaba was listed on the US stock market in 2014, SoftBank held 34.4% of the shares. At present, according to Ali’s latest financial report data, as of mid-July 2022, the largest shareholder of Ali at that time was still Japan’s SoftBank Group, with a shareholding ratio of 23.9%.
The sharp sell-off of Alibaba’s stock is related to SoftBank’s huge losses.
SoftBank Group said the early share settlement would eliminate concerns about SoftBank’s future cash outflows, reduce costs associated with prepaid forward contracts and further strengthen its defenses against tough market conditions.
SoftBank’s Vision Fund has already cashed out from a number of tech companies, such as Uber, real estate trading platform Opendoor, and KE Holdings, which operates the shell-hunting service.
On August 8, SoftBank Group released its results for the first quarter (second quarter) of fiscal 2022, which ended on June 30. The net loss in the second quarter was 3.16 trillion yen (approximately RMB 158 billion), setting a new record for a loss of 1.7 trillion yen in the previous quarter and continuing to hit a new record high.
SoftBank said that the main source of the huge losses was the unrealized investment gains and losses of the two Vision Funds, which reported a total of 2.9 trillion yen (about 146.5 billion yuan) in investment losses in the second quarter. In addition, SoftBank’s foreign exchange losses in the second quarter were as high as 820 billion yen as a weaker yen pushed up the value of dollar-denominated debt.
In May of this year, SoftBank announced the worst annual loss in its 40-year history. In the 2021 fiscal year ending in March this year, the SoftBank Group lost 1.7 trillion yen and the Vision Fund lost 2.64 trillion yen. Both set historical records.
Affected by the huge loss in the performance of the financial report, Masayoshi Son said that he plans to implement comprehensive cost-cutting measures for SoftBank and the Vision Fund.
Earlier media reports said that since the beginning of this year, SoftBank Group has sold about 1/3 of its Alibaba shares through prepaid forward contracts (a derivative) this year. Cooperative banks include Goldman Sachs, Mizuho and UBS. Years later, the final settlement will be completed. In addition, as of the end of March this year, SoftBank had pledged 164 million shares of Alibaba as collateral for a $6 billion loan.
According to SoftBank’s newly released financial report, Masayoshi Son has pledged 54% of his Alibaba shares. As of the end of June 2022, SoftBank held about 9.84 trillion yen (about 492.1 billion yuan) in Alibaba stock market value. SoftBank pledged 5.36 trillion yen worth of Alibaba shares (about 268 billion yuan). In addition, SoftBank once mortgaged some of the shares when Ali’s stock price exceeded $300.
Leifeng.com learned that the “prepaid forward contract” is a derivative. For SoftBank, this approach allows it to raise the corresponding cash immediately, while retaining the possibility of continuing to hold a stake.
However, with regard to whether SoftBank will repurchase Alibaba’s stock in the future, SoftBank emphasized that the company will reserve the right to repurchase Alibaba’s stock. The company said that selling “early” Alibaba shares could help the company “raise capital up front” while “hedging against falling stock prices.” SoftBank meanwhile said it had cut back on new investments and was focused on “growing its cash position in this uncertain market environment.”
SoftBank has changed hands of 40 million Alibaba shares to settle previously struck deals since October, and its stake in Alibaba fell from 24.8 percent to 23.9 percent in mid-July.
SoftBank has sold more shares than the previous three years combined, judging by the record pace of forward sales this year, according to an estimate by the Financial Times, meaning SoftBank may have taken advantage of derivatives trading or stock pledges. More than 80% of Alibaba shares are used as collateral for margin loans.
It is worth mentioning that under the influence of the epidemic, all business segments of Alibaba are also under certain pressure. Except for the loss rate of the local life segment, which has narrowed from 47% to 29%, other businesses have experienced a significant decline in profit margins.
Ali’s latest financial report shows that the revenue in the latest quarter was 205.56 billion yuan, exceeding market expectations of 203.23 billion yuan, and a slight decrease of 180 million yuan compared with 205.74 billion yuan in the same period last year. This is also the first time that Alibaba’s revenue has declined since its listing.
At the same time, Ali’s profit indicators continued to decline in the past: operating profit fell by 19% year-on-year to 24.94 billion yuan, net profit fell by 53% year-on-year to 20.30 billion yuan, and adjusted EBITA fell by 18% year-on-year to 34.42 billion yuan.
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