Masayoshi Son’s SoftBank Group owns almost 25% of Alibaba. Maybe not for long.
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Alibaba (ticker: BABA) on Friday filed with the Securities and Exchange Commission to register 1 billion American depositary shares. The move paves the way for investors to sell shares in the company that have not been traded on the American market before—such as those listed in Hong Kong or held from before Alibaba went public.
An American depositary share refers to a stake in a U.S.-listed foreign company that can be owned and traded by investors in the U.S. An ADS is issued by a U.S. bank that has bundled shares of foreign-listed companies into what is called an American depositary receipt, or ADR.
Alibaba’s ADS registration represents more than $120 billion worth of stock that may soon be traded in the U.S. Such a large amount could signal a looming exit by a major investor, according to analysts at Citi, which also is Alibaba’s U.S. depositary bank.
Look no further than SoftBank (9984.Japan), said a team at Citi led by Alice Yap. The Japanese investment group run by Masayoshi Son owns almost 25% of Alibaba, and invested in the company before it went public. As a result, much of its stake is likely not registered as American depositary shares, the analysts said.
“While we believe a portion of the new registration could suggest future new shares to be issued pursuant to the employee equity incentive plan, we believe it might also suggest potential selling intention by SoftBank,” Yap and her team said.
SoftBank owns the equivalent of more than 673 million U.S. shares of Alibaba, which represents most of the ADSs recently registered by the company.
Alibaba stock fell 4% in U.S. premarket trading Monday, with its Hong Kong-listed shares (9988.H.K.) ending down 4.5%. In Tokyo, SoftBank Group stock rose 2.6%.
With its holdings concentrated in technology companies, SoftBank is likely feeling the pinch from a widespread correction in the tech sector. SoftBank stock has fallen more than 43% from a year ago.
An exit by SoftBank would come as shares in Alibaba trade at their lowest levels since 2017. Much of the decline in Alibaba’s market value — almost 50% in 2021 alone — came amid regulatory pressures in China and slowing growth at the e-commerce powerhouse.
A SoftBank exit would run counter to the recent trend of investors buying the dip in Alibaba. Charlie Munger’s Daily Journal (DJCO) doubled down on its investment in Alibaba at the end of 2021 for the second straight quarter. Munger the vice chair of Warren Buffett’s Berkshire Hathaway (BRK.A and BRK.B).
Neither SoftBank nor Alibaba immediately responded to a request for comment from Barron’s.
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