SoftBank’s Alibaba sale could end breakup ban

SoftBank's Alibaba sale could end breakup ban
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Japan’s SoftBank Group Corp. chief executive Masayoshi Son attends a press conference in Tokyo, Japan, Nov. 5, 2018. REUTERS/Kim Kyung-Hon

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LONDON, Aug 10 (Reuters BreakingView) – Masayoshi Putra is thinking the unthinkable at SoftBank Group (9984.T). His $63 billion technology and telecom empire will reduce his stake in Alibaba (9988.HK) 24% to 15%. The long-overdue contraction offers a blueprint for what to do next: break the collective.

Tech sales this year have punished the Japanese holding company, pushing it to a $23 billion net loss last quarter. Read more . Putra’s new watchword is discipline: his vision fund, effectively a giant venture-capital vehicle, has just been invested. $600 million In the three-month stretch ending in June, that compares with about $21 billion a year earlier.

A similar focus on cash conservation appears to have informed the decision Unveiled on Wednesday To reduce Alibaba’s holdings, which have a totemic significance in SoftBank as one of the world’s most lucrative technology investments. Through derivatives deals with banks, Son could maintain Alibaba’s stake by setting so-called prepaid forward contracts to cash. Instead, I transferred the shares. SoftBank is dramatically reducing its position “to address concerns about future cash flows.”

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It’s the wise move. The Chinese e-commerce titan started by Jack Ma has lost nearly two-thirds of its value over the past two years amid Beijing’s sweeping tech crackdown, creating a huge distraction for SoftBank investors as Son tries to redirect attention to the stability of his vision fund unicorns. and other startups. Alibaba’s holdings were worth $33 billion in net terms as of June 30 and more than one-fifth of SoftBank’s $160 billion net asset value. Eliminating it in its entirety would help narrow SoftBank’s discount to 55% of the theoretical sum of parts.

The same could be said of SoftBank’s sale of its stake in the iconic Japanese mobile operator, valued at $18 billion in June after the parent company’s margin loan was deducted, and $7 billion in T-Mobile US. (TMUS.O) Holding company. Spinning the chip designer arm, instead of planning a smaller parts list, would likewise simplify the group and increase its valuation. What will remain will be the Vision Fund, which gives SoftBank a way for public-market investors to gain exposure to a hodgepodge of largely private tech outfit Sons.

It might not look so attractive in the current situation, but at least SoftBank will have a clear objective. Alibaba’s sale could be the first step in breaking some of the pernicious sanctions.

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(The author is a Reuters BreakingViews columnist. Opinions expressed are his own.)

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SoftBank Group said on Aug. 10 that it would transfer a portion of the shares to the bank that held derivatives contracts against its Alibaba shares. The move effectively reduced its stake in the Chinese e-commerce company from 23.7% to 14.6%.

The technology conglomerate, controlled by billionaire Masayoshi Son, said setting the contracts initially in the form of shares would “remove concerns about future cash outflows, and in addition, reduce costs associated with these prepaid forward contracts”.

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Editing by Jeffrey Goldfarb and Amanda Gomez

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