Japanese telco announces plans to sell shares in Chinese e-commerce player so that it can pay off debts.

Iain Morris, International Editor

June 1, 2016

3 Min Read
SoftBank to Sell $7.9B of Alibaba Shares

Japan's SoftBank is planning to raise about $7.9 billion from selling shares in Chinese e-commerce behemoth Alibaba as it looks to reduce its debt pile.

The transaction will reduce SoftBank Corp. 's stake in Alibaba Group from about 32.2% to 28% and lower the Japanese telco's net interest-bearing debts from about 3.8 to 3.3 times annual EBITDA.

Alibaba has been one of SoftBank's most successful investments, having grown to become a company worth almost $209 billion on the New York Stock Exchange since Masayoshi Son, SoftBank's founder and CEO, first invested $20 million in the fledgling business in 2000.

That move stands in sharp contrast to SoftBank's 2013 takeover of US telco Sprint Corp. (NYSE: S), which has continued to lose out to its US rivals despite management changes and investments in network improvements.

Having paid about $22 billion for control of Sprint, SoftBank has seen shares in the US telco lose about 40% of their value since July 2013, when it completed the acquisition.

Following the Sprint takeover, Son was thwarted in his efforts to acquire T-Mobile US Inc. and merge it with Sprint to create a much bigger rival to market leaders AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ). In the meantime, Sprint's net debt, which does not figure in SoftBank's own numbers, has risen to about $31.3 billion -- or 4.2 times annual EBITDA. (See Sprint Bags Another $3.1B in Financing.)

In a statement published today, SoftBank insisted that it was committed to its partnership with Alibaba but needed to increase its "liquidity cushion."

Son is to remain a board director of Alibaba, according to the statement, while Jack Ma, Alibaba's executive chairman, will continue to be a board director of SoftBank.

"This investment has been phenomenally successful and, over the past 16 years, we have built a close relationship, working together on many exciting projects," said Son. "In that time, we have not sold any Alibaba shares. There are huge opportunities ahead for Alibaba and SoftBank looks forward to the continued partnership."

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Despite SoftBank's positive remarks, there has recently been concern about the prospects for Alibaba, which missed expectations for profit growth in its most recent financial quarter. The US Securities and Exchange Commission is also looking into Alibaba's accounting practices to make sure they comply with federal laws.

SoftBank plans to sell $2 billion of shares to Alibaba, $400 million to members of the "Alibaba Partnership" and $500 million to a major sovereign wealth fund. Another $5 billion will be offered to institutional buyers, along with the option to buy up to an additional $1 billion in securities.

SoftBank said it would enter into a "lockup agreement" with Alibaba under which it agrees not to transfer any Alibaba shares it holds for at least six months, subject to certain exceptions.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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