As the investment juggernaut looks to strengthen its cash reserve to weather the market slump, SoftBank Group Corp said on Wednesday that it would post a gain of $34.1 billion by reducing its stake in Alibaba Group Holding.
By paying off prepaid forward contracts, the Japanese corporation will lower its share in Alibaba from 23.7% to 14.6%. The price of Alibaba’s US-listed shares fell 1.3% in early trading.
As its digital bets failed, SoftBank recorded a $50 billion loss at its Vision Fund investment arm in the first half of the year. Chief Executive Masayoshi Son promised on Monday to further curtail investment activities and decrease costs.
According to the filing, the expected total gain of 4.6 trillion yen ($34.1 billion) consists of 2.4 trillion yen from the revaluation of the Chinese e-commerce giant’s stock and 0.7 trillion yen from derivative gains.
SoftBank CEO invested $20 million in Alibaba in 2000, and the Chinese company’s development into one of the largest e-commerce companies in the world helped solidify his reputation as a tech investor.
However, due to Beijing’s assault on the digital industry, which includes a large punishment on Alibaba and examination of founder Jack Ma’s business empire, Alibaba has lost more than two-thirds of its value from highs in late 2020.
A maximum of 242 million American depositary shares of Alibaba, or nearly 9% of the Chinese company’s total outstanding shares, are represented by the resolved prepaid forward contracts.
As the shares were hedged at the time of the original monetisation, the SoftBank deal is not anticipated to result in further sales of Alibaba shares on the market, according to SoftBank, who also pledged to “continue to maintain a good relationship with Alibaba.”
Relationships between the two businesses have deteriorated recently, with Son leaving Alibaba’s board in 2020 and Ma quitting SoftBank’s board in 2020.
The Japanese tycoon, who has also invested in businesses including ride-hailing service Didi Global, has sought to highlight how little Chinese technology is now represented in his portfolio after values were negatively impacted by regulatory action and rising US-China relations.
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