SoftBank said 10 August that it planned to reduce its stake in Chinese e-commerce company Alibaba as part of a settlement of financial contracts that it expects to add $34bn to pretax income in the current quarter.
The Japanese technology investment company said its stake in Alibaba is expected to fall to 14.6% as a result of the moves. The stake was 23.7% as of 30 June.
It also said Alibaba is expected to cease to be an equity method associate of the company, which changes the way Alibaba’s profits are recorded on SoftBank’s books. SoftBank said it would continue to maintain a good relationship with Alibaba.
SoftBank has been using its assets to raise cash after it suffered big losses on investments in technology startups. The company said 8 August that it recorded a loss equivalent to $23bn in the April-June quarter, mostly as a result of investments that turned sour.
The moves relate to contracts SoftBank has made with financial institutions in recent years under which it raises cash using its Alibaba shares. SoftBank has said it can settle the contracts later either by paying cash or by giving up control of the Alibaba shares. It said the reduction in its stake is happening because it has decided to use the latter method, known as physical settlement, for up to 242 million American depositary receipts of Alibaba.
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SoftBank said it expected a contribution to pretax income of about 4.6 trillion yen, equivalent to $34bn, as a result of the physical settlement.
Alibaba at its peak accounted for more than half of SoftBank’s total assets. But after Alibaba’s share price fell sharply during China’s crackdown on its technology companies, its significance to SoftBank lessened. As of 30 June, the Alibaba holding accounted for about one-fifth of SoftBank’s net asset value, SoftBank said this week.
SoftBank founder and chief executive Masayoshi Son long served on Alibaba’s board, and Alibaba co-founder Jack Ma served on SoftBank’s board. They stepped down from those roles two years ago.
Write to Kosaku Narioka at firstname.lastname@example.org
This article was published by Dow Jones Newswires, a fellow Dow Jones Group service