Japan’s SoftBank concludes run as Alibaba’s biggest shareholder, drawing to a close one of the most successful internet deals in China

SoftBank expects to book US$8.5 billion, about 425 times the value of its Alibaba investment, for its 2024 financial year after divesting its shares
The Japanese tech conglomerate said it has no plans to ‘buy or sell any new Alibaba shares’ in the future

Alibaba

Coco Fengin Beijing

Published: 6:30pm, 26 Jan 2024

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Japanese investment holding firm SoftBank Group Corp has largely cleared its ownership in e-commerce giant Alibaba Group Holding, concluding one of the most successful deals in China’s internet industry and a holding that spanned about 23 years.

SoftBank, which invested US$20 million into Alibaba when it was still a start-up in 2000, said in a corporate filing on Thursday that it was set to book a gain of 1.26 trillion yen (US$8.5 billion) – about 425 times the value of its initial outlay – for the Tokyo-based firm’s 2024 financial year after divesting its shares via subsidiary Skybridge. Alibaba owns the South China Morning Post.

The filing confirmed a Post report on Wednesday that Alibaba co-founders Jack Ma and Joe Tsai had become the largest shareholders of the company they established in Hangzhou, capital of eastern Zhejiang province, in 1999.

The SoftBank transaction involved 512.3 million Alibaba shares sold through a “prepaid forward contract” between Skybridge and financial institutions in April 2020, which was settled between October 2021 and January 2024. That deal involved about a fifth of Alibaba’s total outstanding shares and nearly all of SoftBank’s stake in the Chinese firm.

Masayoshi Son, the founder, chairman and chief executive of SoftBank Group Corp, left, and Alibaba Group Holding founder Jack Ma shake hands at Tokyo Forum 2019 in Japan on December 6, 2019. Photo: Bloomberg

A SoftBank representative said on Friday that most of the company’s remaining 13 per stake in Alibaba is used for asset-backed finance. In its statement on Thursday, SoftBank said it has no plans to “buy or sell any new Alibaba shares” in the future.

Its long partnership with Alibaba helped pave the way for a whole generation of Chinese entrepreneurs to benefit from greater access to overseas funding, which greatly expanded the country’s tech industry and bolstered the country’s economic development.

Tencent Holdings, for example, sold a big chunk of equity to South African internet group Naspers in 2000 that made them the biggest investor in the Shenzhen-based company, which became the world’s largest video gaming firm by revenue and China’s social media giant. In 2019, Naspers spun off its 31 per cent stake in Tencent and other internet holdings into Dutch-listed investment arm Prosus.

SoftBank founder, chairman and chief executive Masayoshi Son said in a 2017 Bloomberg interview that he instantly decided to invest in Alibaba after seeing Ma’s “strong … shining eyes”, despite the Chinese firm having “no business plan and zero revenue” at that time.

Jack Ma, Joe Tsai replace SoftBank as Alibaba’s largest shareholders

“His business model was wrong,” Son said. But Son added that he was moved by “the way [Ma] talks, the way he can bring young Chinese people to follow him”.

Ma said in a 2008 speech that his first meeting with Son in 2000 lasted only six minutes, but the two “fell in love at first sight”.

Son was keen to invest US$40 million into Alibaba, but Ma eventually agreed to a US$20 million outlay from SoftBank. The Japanese company became Alibaba’s largest shareholder since then.

Alibaba’s initial public offering in New York in 2014 enabled SoftBank to trim its stake, which stood at 24 per cent at the time. The Japanese tech conglomerate further cut its stake to about 7 per cent in December 2022 to roughly 2 per cent by March last year and less than 0.5 per cent by May, according to Morgan Stanley estimates in May 2023.

Alibaba banks on new growth pillars after cloud spin-off stumbles

Meanwhile, foreign ownership in China’s Big Tech companies has come under growing scrutiny amid Beijing’s efforts to sharpen security in the sector. Major internet platform operators, like Alibaba and Tencent, have been directed to stick to “healthy” developments that align their operations with national interests.

But the change of controlling ownership in Alibaba has raised hopes that Alibaba could regain its growth momentum. Ma, who retired as Alibaba’s executive chairman in 2019, bought about US$50 million of the company’s stock in the fourth quarter last year, raising his stake beyond the 4.3 per cent reported at the end of 2021, to become the e-commerce firm’s largest single shareholder, the Post reported on Wednesday.

Tsai, who took over as Alibaba’s chairman last year, paid US$150 million to buy the company’s US-listed shares last quarter through his family investment vehicle Blue Pool Management, according to a filing in New York.

SoftBank recorded its fourth straight quarter in the red after reporting a US$5.2 billion loss in the September quarter, as it took a hit from the bankruptcy filing of WeWork. As a result, SoftBank has been cashing out from previous investments. It sold another 2 per cent in the operating vehicle of Indian fintech firm Paytm on Wednesday, following its offloading of 9.8 million shares in Hong Kong-listed artificial intelligence giant SenseTime in March.