US-listed shares of e-commerce giant Alibaba dropped 6 percent on Wednesday, after regulatory filings revealed that Masayoshi Son's SoftBank has sold a majority of its stake in the company.
An analysis of regulatory filings by the Financial Times revealed that SoftBank has already sold shares worth $7.2 billion this year through prepaid forward contracts.
A prepaid forward contract is a technique used in equity transactions to defer tax liability owed on capital gains. Here, the sale agreement is not immediately finalised, but the stockholder collects the money.
Post the sale, SoftBank will own only 3.8 percent in Alibaba compared to the 25 percent stake it owned nearly three years ago. That stake was valued at over $100 billion.
However, a slowdown in the tech sector has resulted in SoftBank, particularly its Vision Fund have been posting heavy losses due to the steep drop in valuations. In February this year, the Vision Fund posted a pretax loss of 660 billion Japanese Yen or $5 billion, making it the fourth straight quarterly loss for the unit.
Back then, Son mentioned that SoftBank would now operate in a "defence" mode and be "more conservative."
SoftBank pocketed $34 billion last year by cutting its stake in Alibaba to 14.6 percent from 23.7 percent to beef up its cash reserves due to the Vision Fund losses. However, SoftBank has made a hefty profit from one of its most successful investments. Son had invested only $20 million in Alibaba in 2000, enabling the then e-commerce startup to become one of the world's most valued tech company.
Alibaba's shares lost nearly 80 percent of their value from their peak in October 2020 post Beijing's crackdwn on the tech sector, which included a hefty fine on Alibaba and scrutiny of Jack Ma's business empire.
Last month, Alibaba announced plans to split its business into six distinct units covering e-commerce, media, and cloud services. The company stated that each unit will explore potential fundraising opportunities, including initial public offerings.
(With inputs from agencies.)
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