Softbank Group Corp said that it is going to sell its shares in Alibaba Group Holding Ltd amounting to $7.9 billion to cut the Japanese company’s debt after it reported losses from Sprint Corp, its telecoms unit in the U.S.
Softbank is the Chinese e-commerce giant’s largest investor and this is the first time they have ever sold shares in the group. Softbank began investing in the company in 2000 and will reduce its holdings from 32.2 percent to 28 percent. The two companies said that there would maintain a strategic partnership between them.
When the Japanese internet and telecoms company invested in a majority stake in the no. 4 wireless carrier in the U.S., Sprint Corp, investors started worrying about the finances of Softbank as their U.S. counterpart faces fierce competition forcing the company to burn cash to gain more subscribers.
Mitsubishi UFJ Morgan Stanley analyst Hideaki Tanaka said that shares of Softbank will step up into positive figures through the sale of Alibaba shares.
“Although Softbank is stepping up investment in Internet firms, it is also making serious efforts to improve its financial standing,” Tanaka wrote in a note to clients.
On Wednesday, Softbank’s shares remained unmoved at 15 percent lower than in the previous year because of investor concerns about heavy debt burdens. Alibaba, on the other hand, experienced a 2.8 percent drop in its shares in extended trading the day before.
A private placement is set to execute the planned sale of the $5 billion to $6 billion worth of stocks to institutional investors by a trust controlled by Softbank. The sale will be managed by Morgan Stanley and Deutsche Bank.
Alibaba will buy back the other $2 billion worth of stock using their cash on hand and Alibaba Partnership will buy $400 million shares. Alibaba Partnership is made up of 34 people including Jack Ma and other Alibaba founders and executives. An unidentified sovereign wealth fund will buy an additional $500 million worth of stocks.
Masayoshi Son, Softbank’s chief executive will remain as Alibaba’s director and Alibaba Executive Chairman Jack Ma will continue to be on Softbank’s board.
Softbank and Alibaba also sealed a lockup agreement which will prevent Softbank from transferring any Alibaba shares for six months.
By the end of March, Softbank holds 11.9 trillion yen ($107 billion) worth of interest-bearing debt with 4 trillion-yen debt invested at Sprint.
The Japanese company is also looking into selling its stake in Supercell, Finland’s smartphone game creator to lower its debt.
Softbank has investments in a slew of internet firms including Yahoo Japan and Indian ride-sharing firm Ola. It had an initial investment in Alibaba worth $20 million.
Alibaba is recently embroiled in an issue where the U.S. Securities and Exchange Commission was investigating its accounting practices. But Scott Devitt, analyst at Stifel maintained a “buy” rating for Alibaba.
“We do not view this as a shift in confidence from a major investor. In fact, it could remove an overhang of expectation of such an event,” he said in a note.