SoftBank admitted to its finance head that it sold Alibaba stocks to soothe investors
A Japanese technology company, according to Yoshimitsu Goto, intended to 'instantly establish' that its finances were sound.
According to the chief financial officer of the technology company, SoftBank sold a significant portion of its investment in Alibaba to "instantly prove" investors that its finances were sound following a historic quarterly loss of $23 billion.
Yoshimitsu Goto acknowledged in an interview with Financial Times that SoftBank's news of the sale a week ago was abrupt after years of downplaying the idea of any rapid, significant exit from its interest in the Chinese e-commerce giant.
Goto allayed market worries that SoftBank's massive losses would continue to pressure the company's relationship with creditors, but he also acknowledged that the Alibaba stake sale was meant to calm investors in one of Japan's most heavily leveraged businesses.
As an investment group, we must immediately demonstrate that our financial standing is rock strong in situations like this, according to Goto.
Some investors questioned if SoftBank's decision to sell its interest in Alibaba was really an attempt to address a developing financial emergency because it was accompanied by what they perceived as an inadequate explanation from SoftBank.
SoftBank announced it would post a gain of 4.6 trillion yen ($33.6 billion) by selling stock in Alibaba, reducing overall the investment on which its founder Masayoshi Son made his name as one of the greatest technology investors in the world, just two days after reporting a worst quarterly performance.
The sale of a number of SoftBank's most valuable assets, which started after the Covid-19 pandemic caused its share price to fall in March 2020 and included holdings in both its domestic mobile company and US carrier T-Mobile, was planned to duplicate the earlier action, according to Goto.
"Just like two and a half years before, we wanted to demonstrate to the world we are able to do such feats due to our financial fortitude. That was the aim," he stated.
The move to drastically cut the Alibaba holding carries the political danger of appearing to be giving up an Chinese investment at such a delicate moment, while the sale served the purpose of strengthening the company's balance sheet. Beijing and Tokyo's diplomatic ties are strained as China is enforcing strict regulations on tech companies.
The largest share repurchase in Japanese history was funded by SoftBank's $41 billion asset sale in 2020, which also helped to reduce its massive debt load and boost investor confidence. The most recent decision to sell Alibaba's stock has increased the group's share price by 10% but has also baffled several analysts.
"At a time when [Alibaba's] shares are down 71% from their peak, SoftBank is cutting exposure to it's own largest asset. It is a very different message from the overwhelmingly optimistic one we have been accustomed to hearing and over years, according to Redex Research analyst Kirk Boodry.
Prepaid forward agreements, a form of derivative to that which SoftBank has often turned to raise quick cash, are being used to execute the selling of the Alibaba share. The company had previously emphasized to investors that since it had the option to purchase back the shares in the future, the arrangements did not constitute a sale.
SoftBank's ownership of Alibaba will drop from 23.7 percent at the end od June to 14.6 percent when the transaction is finalized in September as a result of its choice to settle the transactions early by giving up the option of keeping the shares.
Following two quarters of substantial losses, a number of investors and analysts raised concern, among them the possibility that SoftBank would violate one of its financial agreements with its lenders. According to the covenant, the corporation is not permitted to publish losses for two years in a row. In the year ending March 2022, SoftBank experienced a net loss of $1.7 trillion.
"The financial covenant has no bearing on our choice. We can deal with the covenant issue in a variety of ways, Goto added.
The main goal of the initial payment of Alibaba contracts, he continued, was to allay any worries that the company would eventually need more money to buy back the shares. According to Goto, "We wanted to convey a concise message regarding our financial sheet."
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