Alibaba’s Hong Kong shares slump on SoftBank’s stake sale report

By Kiyoshi Takenaka and Ankur Banerjee

TOKYO (Reuters) -Japanese technology investor SoftBank Group Corp has moved to sell almost all of its remaining shares in Alibaba Group Holding Ltd, the Financial Times reported, sending the Chinese e-commerce giant’s Hong Kong-listed shares lower.

The sale would come as valuations of China’s big tech firms have started recovering this year after an end to two years of heightened regulatory scrutiny, providing a window for long-time investors such as SoftBank to reduce exposure to an economy battered by strict pandemic policies and Sino-U.S. tension.

SoftBank’s share price closed down 1% on Thursday, versus a 0.3% rise in the broader market. Alibaba, one of the most valuable assets in SoftBank’s portfolio, tumbled as much as 5.2% in Hong Kong and closed down about 2%.

Tencent Holdings Ltd’s shares plunged on Wednesday after the social media giant’s top shareholder Prosus NV said it may sell more of its shares, underscoring selling pressure on Chinese tech names.

SoftBank has been seeking ways to monetise its stake in Alibaba, which the Japanese conglomerate bought into more than two decades ago by spending just $20 million.

“They have been clear that … they need to monetise profitable holdings,” Jon Withaar, head of Asia special situations at Pictet Asset Management, said of SoftBank.

“Perhaps some expected that they may slow the pace of their selling in now that their Arm IPO is moving closer to completion, but ultimately everything they are doing is within the scope of what they have told the market.”

Neither SoftBank nor Alibaba responded to Reuters’ requests for comment.

SoftBank aims to list British chip designer Arm this year in an initial public offering (IPO) that would raise at least $8 billion, people familiar with the deal told Reuters last month.

On Wednesday, the FT said forward sales based on filings at the U.S. Securities and Exchange Commission showed SoftBank’s Alibaba stake would eventually fall to 3.8% from almost 15%.

“The positions were already hedged when forward contracts were signed, so there is no more impact on public market,” 86Research analyst Xiaoyan Wang said.

The Japanese group, led by billionaire founder Masayoshi Son, has sold about $7.2 billion worth of Alibaba shares this year through prepaid forward contracts, the newspaper said.

SoftBank said the transactions reflected a shift to “defensive mode” to address an uncertain business environment and that it would provide details in its quarterly earnings results announcement in May, the British newspaper reported.

“China’s regulatory environment in the internet sector turned drastically tougher in recent years, and this is SoftBank simply responding to the changing environment, as it has already been doing,” said SBI Securities analyst Shinji Moriyuki. “It is well within the realms of expectations that the proportion of Chinese shares among its total investment will shrink further.”

SoftBank booked a $34 billion gain last year by cutting its Alibaba stake to 14.6% from 23.7%, as the firm sought to shore up cash reserves amid steep losses incurred by its Vision Fund.

Vision Fund, which upended the tech world with big bets on startups, posted a staggering 8 trillion yen ($60.45 billion)loss in calendar 2022 as market turmoil slashed portfolio firms’ valuations, prompting SoftBank to raise cash.

At the time, it also used prepaid forward contracts – a type of derivative contract that allows investors to hedge risk.

In New York, Alibaba’s shares were up 3% as analysts noted that the stake sale was more due to SoftBank’s circumstances.

Alibaba has lost more than two-thirds of its value from highs touched in late 2020, hit by increased regulatory action in the technology sector that included a hefty fine on Alibaba and scrutiny of founder Jack Ma’s business empire.

The Chinese firm plans to split into six units and explore fundraisings or listings for most of them, marking the biggest restructuring in its 24-year history.

($1 = 132.3500 yen)

(Reporting by Yuvraj Malik in Bengaluru, Ankur Banerjee in Singapore and Kiyoshi Takenaka in Tokyo; Additional reporting by Chavi Mehta; Writing by Miyoung Kim; Editing by Krishna Chandra Eluri, Christopher Cushing and Shounak Dasgupta)