Japan’s mobile telecommunications behemoth SoftBank Group Corp. will sell a long-held investment worth 7.9 billion USA dollars in Chinese e-commerce giant Alibaba Group to enhance its fiscal situation, as it eyes, in part, in rehabilitating its activities in its US communications market, local media said Wednesday.
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Meanwhile, a newly-formed trust will offer $5 billion worth of exchangeable trust securities in a private placement to institutional investors.
Alibaba said it has agreed to pay $2 billion in cash to buy back shares from SoftBank.
That move stands in sharp contrast to SoftBank’s 2013 takeover of United States telco Sprint Corp. “The concerns over ongoing restructuring at Sprint” are the reason why SoftBank’s share reaction is modest, he said.
Shares of Alibaba fell about 2.7% in after-hours trading on Tuesday. Alibaba’s US-listed shares have gained 21% since the company’s initial public offering in September 2014.
The Trust will enter into a variable forward purchase agreement to acquire Alibaba shares from West Raptor Holdings, LLC (“WRH LLC”), a wholly owned subsidiary of SoftBank Group International GK (“SBIGK”), which in turn is wholly owned by SBG.
Further, SoftBank said it will continue to maintain its strong relationship with the e-commerce company. Of those bonds, the company now pays 6% coupon on $1 billion in dollar bonds.
Masayoshi Son, chairman of the Japanese telco giant, said in a statement that the two worked closely for the past 16 years and that there are “huge opportunities” ahead from the continual partnership. The shares are expected to sell for more than $7.9 billion. Both the companies are likely to maintain their strategic partnership.
But the buying spree has put pressure on SoftBank’s finances. How much stock is exchanged will depend on Alibaba’s share price when the shares convert in three years.
In 2013, SoftBank bought a major stake in Sprint, a US telecommunications holding company that provides wireless services and is a major global internet carrier, for 21.6 billion USA dollars.
Signage for Alibaba Group Holding Ltd. covers the front facade of the New York Stock Exchange November 11, 2015. 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.
Following the share sale, SoftBank’s stake in Alibaba will be reduced to about 28 percent from 32.2 percent in end March 2016.
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U.S. web portal Yahoo! SoftBank has already indicated that games aren’t a core part of its business, and may consider a sale of its 19 percent stake in Japan’s GungHo Online Entertainment Inc., the person said. Yahoo has been seeking a tax-efficient way to separate from the stock.
