Just the start

SoftBank's $8-bn Alibaba sale is late but prudent

Nothing is sacred in SoftBank’s big re-programme. The Japanese tech and telecom conglomerate is offloading a 4.2 per cent stake in Alibaba for at least $7.9 billion to help pay down debt. Founder Masayoshi Son had previously insisted that he would keep the one-third shareholding in the Chinese e-commerce giant. The change of heart is a welcome but overdue recognition that the investment is now more of a burden than a blessing.

Son has watched as a $20-million investment in Jack Ma’s e-commerce start-up ballooned into a $67-billion shareholding in just 16 years. Ever since Alibaba secured its own public listing in 2014, however, it has been harder for SoftBank to justify keeping a minority stake. Morgan Stanley calculated earlier this year that SoftBank shares have traded at an average 35 per cent discount to the sum of the company’s parts since Alibaba’s initial public offering.

Now Son is taking some money off the table. The four-part sale will see $2 billion worth of shares sold back to Alibaba, $400 million to the powerful committee of executives that nominates Alibaba’s board, and $500 million to an unidentified sovereign fund. SoftBank will also sell a further $5 billion of stock to institutional investors via exchangeable securities that convert into Alibaba shares within three years.

The total proceeds from the disposal will help reduce SoftBank’s net debt —which had reached $51 billion at the end of March — down to the equivalent of 3.3 times its EBITDA. And that doesn’t count borrowings at Sprint, its ailing US mobile operator.

Even after the sale, though, the Japanese group will continue to hold a 28 per cent stake in Alibaba, which means it is still likely to trade at a substantial discount to the value of its holdings, which include a stake in Yahoo Japan and investments in various start-ups.

It is, however, a clear confirmation that SoftBank is now ready to take a more disciplined approach to a sprawling portfolio swelled by numerous purchases. The company is reportedly in talks to sell its majority stake in Supercell, the maker of the mobile game Clash of Clans, which could help it to pocket another $4 billion. Son has pledged not to sell any more shares in Alibaba for six months. But the mood music suggests more disposals will follow.