Editor's note: This article is from the Wall Street Journal, written by Xu Chao.
Japan's SoftBank Group said on Tuesday it expects to make a pre-tax profit of 1.2 trillion yen ($11.12 billion) from the sale of Alibaba shares.
West Raptor Holdings LLC, a wholly owned subsidiary of the group, sold 73 million American Depositary Shares (ADSs) of Alibaba Group in the form of variable prepaid forward contracts for a pre-tax profit of about 1.2 trillion yen, a filing on the official website of SoftBank showed. The company said it will book the profit in the fiscal quarter ending June. Each Alibaba ADS represents one ordinary share.
The sale is the first sale of Alibaba shares since SoftBank invested in Ali. The company said the transaction was due to the capital structure of the Softbank Group and the need to reduce the size of debt.
The deal is part of a $7.9 billion "cash-out" program announced in 2016 by SoftBank Group. At the time, SoftBank reduced its stake in Alibaba for the first time through derivatives to fund its acquisition of British chip designer ARM.
The $7.9 billion reduction plan consists of three parts: first, the sale of $2 billion in shares to Alibaba, second, $400 million in shares to Alibaba Partners and $500 million in shares to a large sovereign wealth fund; and third, a public offering of $5 billion in Alibaba shares in the form of a convertible trust fund, which allows investors to purchase the fund and enjoy the proceeds, and then SoftBank will make a 3-year Delivery. The delivery of 73 million ADSs is the third part of the above plan.
After the completion of the transaction, the number of shares held by SoftBank Group and its subsidiaries in Alibaba will become 674 million shares, accounting for 26% of Alibaba's total share capital, valued at 101 billion U.S. dollars, and remains the largest shareholder.
Softbank founder and CEO Masayoshi Son purchased Alibaba shares in 2000 for $20 million.In September 2014, Alibaba was listed on the New York Stock Exchange in the U.S., opening at $92.70, which gave it a market capitalization of more than $228.2 billion. At the close of trading on June 3, 2019, US time, Alibaba shares were trading at $149.01, with a market capitalization of $388.6 billion.
Softbank cash Alibaba in its vision fund in the "unicorn" exit difficulties. Earlier market news, Japan's Softbank is considering its size of 100 billion U.S. dollars for the IPO of the vision fund, but also consider the establishment of the size of not less than 100 billion U.S. dollars of the second fund.
Market analysts point out that SoftBank's quest to IPO the Vision Fund is likely an exit strategy to realize locking in profits from investments in startups that are not yet profitable.
Since its inception, the SoftBank Vision Fund has become an exit channel for many startups: the company sells its shares directly to it to complete the exit, rather than following the more traditional and grueling IPO; the latter means that the startup finds a successor to complete the exit. The Vision Fund, which has acquired a large number of unicorns that are not yet profitable, does not yet have a clear exit mechanism.
SoftBank is also getting fancy in the way it exits to cash in. Previously Softbank's Vision Fund is planning to borrow $4 billion with its shares in Uber and two other Silicon Valley companies. Analysis pointed out that by mortgaging shares to obtain loans in advance so that Softbank can bypass the lock-up period of the company's shares, early cash.
Also obtaining loans by pledging stock gave SoftBank a ratings convenience: even if the bank was able to confiscate the stock when the price fell, its inability to track the borrower's other assets meant that those loans were not factored into SoftBank's credit rating.
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