Does Alibaba registering 1 billion American shares mean major shareholder SoftBank is heading for the exit?

• Alibaba filed to register 1 billion new American depositary shares to make room for shares to be deposited by unnamed existing holders
• Stock slumped 4.5 per cent as analysts speculated SoftBank may be planning to sell its stake

Alibaba Group Holding slumped in Hong Kong by the most in four trading days after the e-commerce group filed to register more American depositary shares (ADS) in the coming days, stoking speculation that some insiders are preparing to sell their stakes.

The Hangzhou-based company plans to register an additional 1 billion new ADSs, according to its 6F filing in New York on February 4. The move is to prepare for the deposit of ordinary shares, including by current holders who have indicated their intent to do so in the future, Alibaba said.

While this issuance does not dilute investors’ stakes or raise additional capital, it created additional uncertainty in a stock whose slump over 12 months to an all-time low has already unnerved investors and wrong-footed analysts. Citigroup said in a February 6 report that SoftBank Group may be planning to cut its stake in the company.

“What we can analyse about the situation is similar to Citi’s, but at the moment it is just a guess,” said Zhang Jun, head of research and portfolio manager of China Asset Management (HK). SoftBank, one of the earliest and biggest financial backers of Alibaba, has also previously sold the company’s shares but that has not [required] new registration of ADSs, he added.

Alibaba’s issued capital comprised 21.7 billion ordinary shares, translating into the equivalent of 2.72 billion ADSs, according to its most recent financial report. The new ADSs would amount to more than one-third of the existing base. One ADS represents eight ordinary shares.

SoftBank has a long-term “Master ADS Agreement” from September 2014 to deposit its shares into so-called structural safekeeping accounts (SSA) and sell them in the form of ADS. SoftBank held 5.39 billion ordinary shares, or about a quarter of Alibaba’s issued capital, according to its November 2019 IPO prospectus.

Other key shareholders of Alibaba are co-founder Jack Ma, with a 6 per cent stake, and directors and executive officers with a combined 9 per cent stake. Alibaba is the owner of South China Morning Post.

SoftBank and Alibaba did not immediately reply to emails seeking comment on the February 4 filing.

 

Alibaba is due to report its December quarter earnings any time soon, with analysts cutting their stock price targets again in the past few weeks amid stiffer competition, regulatory risk and weaker advertising spending.

Alibaba sank 4.5 per cent to HK$115 on Monday, erasing HK$117 billion (US$15 billion) of market value and contributing to a 0.9 per cent pullback in the Hang Seng Technology Index.

The stock has lost 54 per cent since hitting an all time high of HK$307.40 in October 2020. It tumbled 54 per cent in 2021 amid a regulatory crackdown on the tech sector.

If history is of any guide, the registration of Alibaba’s new depositary shares may leave more room for further stock weakness until the company offers clarity to the news.

Alibaba registered 500 million ADSs in May 2019, before its stock began trading in its US$13 billion Hong Kong IPO, in what was then the largest secondary listing of its kind. The stock slipped 5.3 per cent in New York on the next trading day, and finished the week with an almost 9 per cent loss.

“We can’t correlate it (the 6F filing) to delisting concerns,” said Mark Po, analyst at China Galaxy International Securities. “The market is thinking that this move will increase trading on Hong Kong’s side, broadening the investor base and reducing the reliance of trading in the US markets.”

Author: Cheryl Heng, SCMP