Elliott management, a well-known activist investor, previously called for a large-scale buyback by Softbank group of Japan, but Masayoshi son, CEO of Softbank, made a speech on Wednesday, pouring cold water on the idea of reducing its stake in Alibaba Group (NYSE: Baba). At present, Softbank group holds $150 billion worth of Alibaba shares.
Elliott management, headquartered in New York, has become a shareholder of Softbank, prompting people to pay attention to the 26% shares of Alibaba held by Softbank, which are Softbank's largest assets and sun Zhengyi's most successful bet in the field of science and technology so far.
Elliott management, one of the world's most prominent activist investors, now holds nearly $3 billion worth of Softbank shares. According to sources, the company is currently pushing for soft bank reform, including urging it to buy back $20 billion of shares. But Mr Sun said he was not in a rush to sell Softbank's Alibaba shares, raising questions about how Softbank could fund any potential share buyback deal.
"I believe Alibaba has a lot of room for growth. I'm not in a rush to sell its shares. " He said at a press conference on Wednesday.
Softbank's leverage is already high, making it difficult to attract external funding for its second Technology Fund. Analysts said Sun's unwillingness to reduce his stake in Alibaba meant the group had little room to buy back shares on a large scale as Elliott management hoped.
"From a shareholder's point of view, we should sell [Alibaba] shares and invest in things that will generate returns," wrote Kirk boodry, an analyst at REDEX holdings, on smartkarma, a research platform He believes that if Softbank believes that after selling Alibaba's shares, the return on investment in the future can't surpass the current return on shares, then "for a company engaged in venture capital business, it seems a little inconceivable.".
According to Softbank's results on Wednesday, the group's performance has barely allayed investors' concerns about its corporate strategy. Softbank's $100 billion vision fund lost for the second consecutive quarter, wiping out almost all of Softbank's quarterly profits, according to the results.
"This performance confirms our concern that most of the things [Softbank] does, apart from its stake in Alibaba, have distracted or damaged value," said Atul Goyal, an analyst at Jefferies, a Wall Street investment bank, in a study
Softbank's stake in Alibaba is worth about $150 billion, higher than Softbank's own market value of $110 billion. In addition, Softbank has few other assets to use, and its other holdings include two-thirds of Softbank Corp, Japan's wireless arm. However, the group's cash flow does need to rely on dividends from the telecommunications sector. The Division has promised to distribute 85% of its net profits to shareholders as dividends.
At the end of December, Softbank had 3.8 trillion yen ($35 billion) in cash and cash equivalents on its books. However, the use of the funds is limited by Softbank's own financial policies aimed at appeasing investors, such as its commitment to keep enough cash so as to be able to pay for bond redemption for at least two years.
According to financial market data and infrastructure provider refinitiv, Softbank's weighted average debt cost is the highest among the Nikkei 225 index companies.
Before Softbank acquired arm, a chip design company in 2016, sun Zhengyi sold part of Alibaba's shares and benefited from the subsequent rise of Alibaba's share price by using derivatives trading, which was quite unexpected at that time, and is likely to herald more surprises.
Although sun Zhengyi said Wednesday that he agreed with Elliott's concerns, he made it clear that any change would be up to him. "I am the biggest shareholder of Softbank, so I care about the stock price and want to improve the company's value." He said. "However, it is up to our management to decide what to do."
