Will China’s tech stock turmoil weaken Japan’s SoftBank 9984 -1.75% Group Corp.’s financial fire for new investment and sell some of Alibaba BABA -1.88% Group Holding Ltd.’s huge stake? We are encouraging discussions about what to do.
The US-listed Chinese stock Nasdak Golden Dragon China Index fell 52% in the 12 months to Friday. Alibaba fell 49% and Softbank’s Tokyo-listed stocks fell 40%.
David Gibson, senior research analyst for Japan’s Internet sector at MST Financial in Australia, estimates that SoftBank is approaching a voluntary debt limit of 25% of its loan-to-value ratio due to a decline in the valuation of its assets. increase. According to Gibson, this means restrictions on new borrowings, investments and share buybacks.
Gibson pointed out SoftBank’s Vision Fund. This includes holdings such as Didi Global Inc., where US-listed stocks fell more than 70% from last summer’s offer price of $ 14. “SoftBank is currently capital-bound, not only because Alibaba’s market capitalization has fallen, but also because of the vision fund,” he said.
Founder Masayoshi Son states that SoftBank’s loan-to-value ratio, or net debt divided by the value of the shares held, is typically less than 25%. S & P Global Ratings in March said it expects SoftBank to manage a ratio of about 30% by adjusting the pace of investment in the fund business.
Investors have recently been paying attention to signs that SoftBank could sell a portion of Alibaba’s nearly 25% stake. Softbank recorded a profit worth $ 558 million in the last three months of 2021 after the deal was settled using what his son called “just a little” of Alibaba shares.
“Softbank may need to sell more [its] Alibaba shares will need more funding in the future, “said Atule Goyal, an analyst for technology, gaming and telecommunications at Jeffreys. A SoftBank spokeswoman declined to comment on the listed holdings.
Mr. Song’s company has raised tens of billions of dollars in recent years, backed by some of China’s e-commerce giants and other listed stocks of Softbank, to fund new investments. It did not lead to a successful sale.
This so-called asset-backed security, which combines derivatives and loans, shows that SoftBank is tolerant of bold and sometimes complex financial agreements. This number does not affect the loan-to-value ratio, which reflects traditional debt.
SoftBank Corp. announced that it has raised $ 6.9 billion in asset-backed loans using Alibaba shares from April to December 2021. It also raised funds for the holdings of T-Mobile US Inc., Deutsche Telekom AG, and its telecommunications company SoftBank Corp.
Overall, asset-backed lending using Alibaba shares is valued at around $ 25.8 billion at the end of 2021, and SoftBank said last month that it was worth about 35% of Alibaba’s holdings.
Financing is partly through margin loans and partly through prepaid forward contracts. The contract is a prepaid contract by the bank or broker to SoftBank and agrees to settle the obligation later, either in stock, cash, or a mixture.
The deal may be one way for SoftBank to reduce its stake in Alibaba. However, they have not promised that SoftBank will sell its shares in the future, and how to settle may depend on issues such as its liquidity and Alibaba’s share price.
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Some transactions set the lowest price of the stock used to settle the contract, while others set both the minimum and maximum prices. According to a recent SoftBank presentation, the use of forward trading “hedges stock prices below the lowest price”.
Alibaba’s contribution to SoftBank’s overall net asset value plummeted from 60% at its peak in September 2020 to 24% as of December 2021. This number does not include Alibaba shares used to raise funds.
Alibaba headquarters in Hangzhou, China.
Photo: Qilai Shen / Bloomberg News
Despite the withdrawal, Alibaba is one of SoftBank’s most successful investments, starting with a $ 20 million investment in Hangzhou, China in 2000. “I think Alibaba is still a great company,” Son said in February.
Recent intervention by Chinese policy makers to restore market confidence and a move to increase Alibaba’s repurchase program to a record $ 25 billion will help Chinese stocks regain most of their losses to date. It is useful.
— Megumi Fujikawa contributed to this article.
Write to Dave Sebastian ([email protected])
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