Japan telecommunications and internet company SoftBank Group Corp yesterday said that it will sell at least $7.9 billion worth of shares in Chinese e-commerce giant Alibaba Group Holding Ltd, a move designed to cut debt mainly accrued from its 2013 acquisition of US-based wireless company Sprint Corp.
The Tokyo-based company, which owns 32.3 per cent of Alibaba shares, said that after the sale it would hold about a 28-per cent stake in Alibaba.
Despite the stock sell-off, SoftBank will remain one of Alibaba's largest shareholders, ahead of US web portal Yahoo! Inc, which holds about a 15 per cent in Alibaba.
A SoftBank-controlled trust will sell $5 to $6 billion of Alibaba shares through private placement to institutional investors. This sale will be managed by Morgan Stanley and Deutsche Bank.
It will sell another $2 billion worth of share to Alibaba and $400 million to Alibaba Partnership, a 34-person group made up of Alibaba executive chairman Jack Ma and other Alibaba founders and executives.
It will sell an additional $500 million worth of shares to an unidentified sovereign wealth fund.
SoftBank had also entered into a lockup agreement with Alibaba under which it will not transfer any Alibaba shares held by the company for six months.
SoftBank CEO Masayoshi Son will remain a director at Alibaba, while Jack Ma will continue to be on the board of SoftBank.
"The transactions are expected to allow SBG to monetize a portion of its Alibaba shares in order to increase its liquidity cushion, improve SBG's consolidated net interest-bearing debt/EBITDA ratio ... and enable flexible and prudent financial management," the company said in a statement.
''This investment (in Alibaba) has been phenomenally successful and, over the past 16 years, we have built a close relationship, working together on many exciting projects. In that time, we have not sold any Alibaba shares," said Masayoshi Son. "There are huge opportunities ahead for Alibaba and SBG looks forward to the continued partnership.''
In June 2013, shareholders of Sprint voted in favor of a sweetened $21.6 billion takeover offer from SoftBank, ending a five-month takeover battle between the Japanese carrier and US satellite-TV provider Dish Network. (See: Sprint shareholders vote for SoftBank's $21.6-bn deal) http://www.domain-b.com/companies/companies_s/Sprint/20130626_softbank.html
SoftBank has been struggling to revive Sprint, which has been burning cash amid fierce competition.
SoftBank had interest-bearing debt of 11.9 trillion yen ($107 billion) as of end-March, including ¥4 trillion at Sprint. Its debt-equity ratio stands at 4.56, much higher than the industry average of 0.32, according to Thomson Reuters data.
The sale will reduce SoftBank's ratio of net debt to earnings before interest, taxes, depreciation and amortization to 3.3 times, from 3.8 at the end of March. A lower number means that a company is better positioned to pay down its debt. SoftBank's net debt to EBITDA ratio was below 2 three years ago, according to a Bloomberg report.