Alibaba Shares Plunge As Citi Suspects Softbank May Dump Stake

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by Tyler Durden
Monday, Feb 07, 2022 - 03:40 PM

There's speculation Monday that Masayoshi Son's SoftBank Group, which owns a quarter of Alibaba Group, could be ready to offload shares, according to Bloomberg, citing Citigroup Inc. analysts. 

Alibaba's American Depositary Receipts (ADR) trading in New York slipped as much as 6% Monday morning, the most in two weeks, amid concerns about the company's 6F filing in New York on Feb. 4 indicating the registration of 1 billion new ADSs, stoking speculation some insiders, including SoftBank may be preparing to offload part of their stake. 

Citigroup told clients that SoftBank might be preparing to cut its stake in the company. According to Citi's calculations, SoftBank owns 5.39 billion ordinary Alibaba shares, equivalent to 673.76 million ADSs, or a 24.8% stake.

"A potential stake sale could make sense for Masayoshi Son's SoftBank, given pressure from investors in recent months as the value of many portfolio companies, including Didi Global Inc., One 97 Communications Ltd. and DoorDash Inc. was dragged lower by the technology downturn.

"The registration could also cover the company's need to issue new shares for an employee equity incentive plan," Bloomberg said. 

"What we can analyze 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 is one of Alibaba's original investors and most prominent financial backers. 

Speculation of the ADS sale comes as Beijing's technology crackdown has battered the stock, down 64% from its October 2020 peak of $307.

On a larger timeframe, ADR shares had surged well over 400% between 2015 and 2020. Now the price has retraced to the 76.4% level of support of around $118. 

If history is any guide, the registration of Alibaba's ADRs could threaten the stock with further downward pressure. However, we've previously noted that China technology stocks are attempting to hammer out a low as the People's Bank of China initiates easing policies.

Global Times released this headline today: "China kicks off Year of Tiger with 'full confidence, courage and optimism'."