SoftBank Group Corp. is selling additional $2.1 billion of shares in Alibaba Group Holding Ltd due to a strong demand. Initially, the company announced the sale $7.9 billion of shares in Alibaba. The offering was upsized to $8.9 billion by Thursday, and by Friday.
SoftBank is the e-commerce company’s largest shareholder. The shares sale will help the Japanese company to reduce its debt. Alibaba’s bonds are welcomed by the investors because of a relatively high annual yield of 5.75%.
Alibaba Buying $2.0 Billion Own Shares
On Thursday, SoftBank announced that it priced a series of capital raising transactions including an additional sale which involve monetizing a portion of its shares of Alibaba for $8.9 billion. The offering of mandatory exchangeable trust securities exchangeable into American depositary shares (ADS) was priced by the newly-formed Mandatory Exchangeable Trust in a private placement for $5.5 billion. The trust also granted the initial purchasers an option to purchase up to an additional $1.1 billion of its trust securities.
On Friday, SoftBank said the initial purchasers of Mandatory Exchangeable Trust Securities exercised in full their option to purchase up to an additional 20% or $1.1 billion of the securities. Following the exercise of the option, the total size of the offering rose to $6.6 billion.
SoftBank first invested in the Chinese e-commerce giant in 2000. For the first time, the company is selling the e-commerce company’s stock in the last 16 years.
Other transactions include the sale of $2.0 billion in ordinary shares to Alibaba, $400 million to Alibaba Partnership, and $500 million to GIC Private Limited, and $500 million to Temasek Holdings Private Ltd.
The shares, other than those purchased by the e-commerce company, would be eligible for resale following a 6-month holding period, SoftBank said.
Once all the transactions are completed, Softbank’s stake in Alibaba Group Holding Ltd will decline to around 27% from 32.2%.
SoftBank said the shares sale will generate proceeds that it plans to use to increase its liquidity cushion, improve its leverage ratio and enable flexible and prudent financial management for the company.
Alibaba’s Relationship with SoftBank
Further, SoftBank said it will continue to maintain its strong relationship with the e-commerce company. SoftBank’s Chairman and CEO Masayoshi Son will remain a board member of Alibaba, while Executive Chairman Jack Ma will remain a board director of SoftBank.
SoftBank also entered into a lockup agreement with the e-commerce company. Under the agreement, the company will not to transfer any Alibaba shares held by it for a period of six months, subject to certain exceptions.
Separately, SoftBank agreed to sell most of its remaining stake in mobile gaming company Gungho Online Entertainment (3765.T) back to the company for 73 billion yen ($685.38 million), Gungho said, Reuters reported.
“Under the leadership of Masayoshi Son, SoftBank has been a highly valued, long-time partner of Alibaba for more than 16 years, and we look forward to continuing our strong partnership together,” Jack Ma said in a statement. “As SoftBank looks to strengthen its own balance sheet, Alibaba determined that it was the best use of our capital to re-invest in our own business through an efficient buyback of a large number of shares in our own company that is accretive to our stockholders,” Jack Ma added.
The Chinese e-commerce giant is under investigation by the U.S. Securities and Exchange Commission (SEC) over its accounting practices.
Shares of Alibaba Group Holding Ltd closed down 0.88% on Friday. The stock has dropped by 7.23% during the past six months.