SoftBank sells Ali, “returning blood” $34.5 billion

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This article is from WeChat public account: Wall Street News (ID: wallstreetcn) , author: Gao Zhimou, title map source: Visual China

On the afternoon of August 10, SoftBank Group and Alibaba Group issued an announcement showing that the SoftBank Board of Directors has approved the advance settlement of up to 242 million Alibaba ADR forward contracts, with an estimated total transaction revenue of 4.6 trillion yen (about 34.5 billion US dollars). . After the settlement, SoftBank Group’s stake in Alibaba Group will drop from 23.7% to about 14.6%.

In order to raise funds, SoftBank previously signed the above-mentioned forward contracts with several financial institution counterparties. It is reported that there are usually two calculation methods for such contracts. One is to exchange the shares delivered at the conclusion of the contract through cash settlement, and the second is to retain the cash obtained at the conclusion of the contract through share settlement. Softbank chose to settle this time. the latter.

In the past, whenever SoftBank raised cash by selling Alibaba, the company tended to retain the option to repurchase forward contracts to free up shares. The physical settlement this time means that SoftBank will give up the right to repurchase shares in the future.

The group expects that these prepaid forward contracts, which are settled in shares, will not result in additional sales of Alibaba shares to the market by counterparties of various financial institutions, as the forward contracts have been hedged in advance by the counterparties in the open market. Relevant documents show that the counterparties of SoftBank’s “prepaid forward contracts” include investment banks such as Goldman Sachs, Mizuho and UBS.

According to the SoftBank Group announcement, the above-mentioned share settlement will begin in mid-August 2022 and is expected to be completed by the end of September 2022. The settlement involves about 242 million Alibaba American depositary shares, or about 9% of Alibaba’s total issued shares. As its shareholding declines, SoftBank Group may lose its seat on Alibaba’s board of directors and prevent SoftBank from consolidating revenue from Alibaba in its earnings report.

In this regard, SoftBank Group said that the early share settlement will eliminate concerns about SoftBank’s future cash outflows, reduce costs associated with prepaid forward contracts, and further strengthen its defense against tough market conditions.

SoftBank’s epic rout, Ali has become a “life-saving straw”

Heavy bets on growth areas such as technology and the Internet have made SoftBank “overwhelmed” in the past two years. On August 3, “Fortune” magazine released the list. Among the world’s top 500 companies, SoftBank Group ranks first in the list of losses.

On August 8, SoftBank Group released its financial report for the first quarter of fiscal year 2022 (April to June of the natural month) , showing that the company’s net loss during the reporting period was as high as 3.16 trillion yen ($23.4 billion) , a refresh of the previous year. A record quarterly loss of 1.7 trillion yen continued to hit an all-time high. At the conference that followed, Son pledged to slash costs and conducted an hour of public self-criticism, claiming “I’m ashamed of my past greed for profiteering.”

Wall Street news mentioned that, under the huge loss, SoftBank raised a lot of money by selling Alibaba’s forward contracts. In the second quarter, the company “returned” $10.5 billion through forward contracts, and SoftBank raised nearly $6.8 billion through such contracts on and after July 1.

It is worth mentioning that since Alibaba went public, whenever SoftBank Group faces a crisis, it almost always chooses to sell Alibaba to cash out “return blood”.

In 2016, in order to raise funds for the acquisition of ARM, Softbank reduced its holdings in Ali for the first time; in 2019, SoftBank sold 73 million American depositary shares in Ali again, with a cash-out amount exceeding US$13 billion, and its shareholding ratio dropped to 25.8%; SoftBank will suffer huge losses in 2020 1.35 trillion yen. At the end of March of that year, it said that it would cash out 14 billion US dollars from Ali. After this huge loss, the reduction of Ali’s holdings has become Sun Zhengyi’s “life-saving straw”.

So far this year, SoftBank has fallen by nearly 20%; during the same period, Alibaba has fallen by 24.25%.


This article is from WeChat public account: Wall Street News (ID: wallstreetcn) , author: Gao Zhimou

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