Japan’s SoftBank said on Wednesday it would sell at least $7.9 billion worth of its shares in Chinese e-commerce giant Alibaba to reduce its leverage.
SoftBank’s chairman and CEO, Masayoshi Son, will remain a board director of Alibaba, and Alibaba’s executive chairman, Jack Ma, will remain a director of the Japanese firm.
The partial sale of its 32.2% stake would be the first time Alibaba’s biggest shareholder has sold stock since it first invested in 2000.
“This investment has been phenomenally successful and, over the past 16 years, we have built a close relationship, working together on many exciting projects. In that time, we have not sold any Alibaba shares,” Son said in a statement.
SoftBank had previously talked about securing funds for its current ¥500 billion ($4.5 billion) share buyback and taking profits on investment assets, however few stock analysts had expected the Japanese firm to sell Alibaba shares.
But Goldman analyst Ikuo Matsuhashi said he did not think the sale was a bad sign for US wireless operator Sprint, which SoftBank acquired in 2013 in a deal that has been weighing on the Japanese firm's stock price since.
“This decision does not hint at a change in circumstances at Sprint, given Softbank management only just indicated that it was confident Sprint’s earnings would improve,” said Matsuhashi.
The Tokyo-based stock analyst said he thought it was positive SoftBank was prepared to exit even core stocks in its portfolio depending on conditions.
JP Morgan analyst Jun Tanabe went further: “We think the announcement will prompt investors to reassess the company’s investment assets and think the share price could rise as a result.”
The selldown will comprise of a $2 billion sale of Alibaba ordinary shares to Alibaba and $400 million of Alibaba ordinary shares to members of the Alibaba Partnership, a group of Alibaba executives.
It will also involve the sale of $500 million of Alibaba ordinary shares to a major sovereign wealth fund, while a newly formed Mandatory Exchangeable Trust will sell $5 billion of mandatory exchangeable trust securities exchangeable into American depositary shares of Alibaba in a private placement to qualified institutional buyers. Deutsche Bank and Morgan Stanley are orchestrating the sale of the private placement.
SoftBank said the sale would improve its consolidated net interest-bearing debt / EBITDA ratio (excluding Sprint Corp.) from 3.8 times as of March 31 to about 3.3 times.
SoftBank will also enter into a lockup agreement with Alibaba, under which it agrees not to transfer any Alibaba shares held by it for a period of six months, subject to certain exceptions.
Details such as the tax treatment of this transaction are unclear at present.