Not all small things are beautiful. On Wednesday SoftBank, the Japanese technology and telecoms group, said it would sell a portion of its stake in Alibaba. SoftBank will cut the holding by four percentage points, leaving it with 28 per cent of the Chinese online retailer. The selldown is overdue, but it is unnecessarily complicated and too small to have a meaningful impact on Softbank’s poor financial situation.
SoftBank does not want to sell Alibaba, but it needs the cash. The company’s balance sheet has been weakened by its acquisition of Sprint, the US mobile carrier, in 2013. Interest expenses have mushroomed since. In the 12 months ended in March they ate up more than 40 per cent of operating profit, up from 8 per cent for the financial year before the purchase. Although SoftBank is confident of a Sprint turnround, the sale of Alibaba suggests that is some way off.
Because of its reluctance to sell, SoftBank has attempted to retain an interest in the Alibaba shares it is selling. Of the $8bn total, $2.4bn worth of ordinary shares will go to Alibaba and members of its management. Of the balance, $5bn will go into a mandatory exchangeable trust (MET). Similar to a convertible bond, the MET will vest into Alibaba shares after three years. If the shares perform well, MET holders will receive fewer of them. To compensate for this forfeit, SoftBank will pay them a quarterly coupon.