SoftBank to sell part of stake in China's Alibaba for 7.9 billion US dollars

SoftBank said Wednesday it will sell at least 7.9 billion US dollars worth of its stake in Chinese e-commerce giant Alibaba, as the Japanese firm looks to pay down a whopping debt load.

The mobile carrier, led by colourful billionaire Masayoshi Son, first invested in Alibaba in 2000, which has since ballooned into what is now considered to be the world's biggest online retailer. In recent years, SoftBank launched an acquisition streak that saw it pick​ ​up an assortment of firms, including its 16 billion​ US dollars​ purchase of US-based​ ​mobile giant Sprint.​

But the buying spree has put pressure on SoftBank's finances. Its total debt stood at an eye-watering 11.92 trillion yen (106 billion US dollars) at the end of March, nearly tripling from just three years earlier, according to Bloomberg News. The firm also announced earlier this year it would buy back more than 14 percent of its stock at a cost of about 500 billion yen.

SoftBank, which is Alibaba's biggest shareholder, said Wednesday it had "approved of a series of capital raising transactions, which involve monetising a portion of the shares of Alibaba"​. ​It called the investment "phenomenally successful" and said the two firms would continue to work together. The sale will reduce SoftBank's 32.2 percent holding in Alibaba to about 28​ ​percent, it said, adding that proceeds would be earmarked for debt payments.​

SoftBank's move, however, was unexpected because Son -- one of Japan's richest men -- had previously been cool to the idea of selling down the Alibaba stake, analysts said. "It was surprising to me that they were selling the Alibaba stake," regardless of the large amount of proceeds, said Jun Tanabe, a Tokyo-based equity analyst at JPMorgan. "But the move itself is positive."

Record 25 billion US dollars IPO

Son and Alibaba's executive chairman Jack Ma will remain on the board of each other's firms. "As SoftBank looks to strengthen its own balance sheet, Alibaba determined that it was the best use of our capital to re-invest in our own business through an efficient buyback of a large number of shares in our own company" to benefit shareholders, the Chinese company said.

Alibaba is buying back at least 2.0 billion US dollars worth of the shares that SoftBank is selling, while 500 million US dollars would be sold to an unnamed "major sovereign wealth fund", the Japanese company said. Another 400 million US dollars would be sold to the Alibaba Partnership, an​ ​investment structured to let SoftBank get cash for its Alibaba shares while​ ​maintaining an interest in the stock, it said.​

SoftBank has seen its profits boosted thanks to Alibaba's record 25 billion US dollars market debut in 2014 in New York.​ ​Meanwhile, Alibaba said this month that revenue surged 39 percent in the​ ​first quarter, defying both China's economic slowdown and increasing competition in the world's biggest e-commerce market.

Alibaba is China's dominant player in online commerce with its Taobao platform estimated to hold more than 90 percent of the consumer-to-consumer market, and its Tmall platform is believed to have over half of business-to-consumer transactions.

There has been speculation that company founder Ma, China's second richest person, plans to buy Italian football club AC Milan, though he has joked about the reports. The Wednesday announcement came after the Chinese online giant disclosed last week that US securities regulators were probing its accounting for possible violations of US securities laws.

SoftBank shares jumped more than 2.5 percent in late morning trading in Tokyo on Wednesday. Alibaba's US-listed shares declined 3.1 percent Tuesday after the announcement of SoftBank's planned share sale. (AFP)

Photo: Flickr, by leighklotz