Alibaba To Buy Back Certain Stake Owned By SoftBank Under Strategic Partnership Deal

SoftBank Group Corp., the Japanese multinational telecommunication and Internet Company, has been considering selling its shares in Alibaba Group Holding worth at least $7.9 billion. The former appears to be the largest investor in the Chinese e-commerce giant. The planned move is expected to reduce SoftBank’s debt burden amid worries over losses in its US telecom unit, Sprint Corp.   

If the plan gets implemented, this will be the first sale of shares by the Japanese telecom giant since investing in the company during 2000. SoftBank’s stake in Alibaba will be reduced to 28% from 32.2% after the planned sale. However, the two companies have vowed to continue strategic partnership.

Concerns of the SoftBank investors have been growing following acquisition of major stake in no. 4 US wireless carrier, Sprint Corp. during 2013. Sprint has been burning cash due to vigorous competition among the carriers in booking subscribers. Efforts for reducing debt burden are expected to bring back investors’ confidence over SoftBank shares, reports Bloomberg quoting Hideaki Tanaka, an analyst at Mitsubishi UFJ Morgan Stanley.

In a bid to implement the plan, SoftBank has set up a new trust to sell shares worth $5 billion in Alibaba’s American depository receipts to qualified institutional buyers. The divestment will take place through a private placement agreement. The Japanese internet giant will also sell shares worth $2 billion to Alibaba, another $400 million to members of the Alibaba Partnership of senior executives and further $500 million to a major sovereign wealth fund, according to a report published in Reuters.

According to the agreed strategic partnership, SoftBank will maintain Alibaba as its core holding and CEO Masayoshi Son will hold the position of a board director in Alibaba as earlier. In retaliation, Alibaba’s executive chairman Jack Ma will continue enjoying board-directorship in SoftBank. Furthermore, the Japanese telecom giant has also agreed to maintain a six-month lock-in restricting further transfer of stock, reports Forbes.

The planned transaction will bring down SoftBank’s ratio of net debt to earnings before interest, taxes, depreciation and amortization (EBITDA) to 3.3 times from 3.8, accounted during the end of March. This reduction in ratio will reflect more ability of SoftBank in repaying debt. The Japanese internet giant has witnessed the ratio at a level of below 2 just three years back.

Alibaba is going to avail of the in-time opportunity to re-investment in its own business through buying back large number of shares from SoftBank. The aim aims to help strengthening the latter’s balance sheet, informs Jack Ma through a statement.