Alibaba Jumps in Hong Kong as Softbank Denies Share Sale

Alibaba Group Holdings (HK:9988) and (BABA) drove the entire Hong Kong market higher on Wednesday, with shares in China's dominant e-commerce force jumping 6.8%. You can expect the company's New York listing to follow suit.

The movement helped lift the Hang Seng Index 2.1% today, while the Hang Seng Tech Index rose 3.7%. Mobile-phone maker Xiaomi (HK:1810) and (XIACF) was the second-best performer with a 4.8% gain, and rival e-commerce platform JD.com (HK:9618) and (JD) saw its shares rise 4.3%.

Alibaba's gains stem from a statement from major shareholder Softbank Group (T:9984) and (SFTBF) that a recent move by Alibaba does not reflect a desire by Softbank to sell down its stake.

Alibaba filed late on Friday that it is registering an extra 1 billion American Depositary Shares.

Citibank analysts suggested this might indicate that Softbank is looking to sell some of its 24.8% holding, which makes it Alibaba's largest shareholder. Softbank bought into Alibaba way before its New York initial public offering in September 2014, so its shares likely aren't registered as ADS, the analysts noted. Citibank is actually the depositary institution for the new ADS, so the conclusion of the bank's analysts carry perhaps a little extra weight.

On Wednesday, Softbank said that conclusion is off the mark. "The registration of the ADR conversion facility... is not tied to any specific future transaction by SBG," SoftBank said in a statement issued to Reuters. Softbank founder Masayoshi Son told analysts he was "surprised" and hadn't requested the filing.

Alibaba had actually explained in its filing that the extra ADS registration is necessary to accommodate the transfer of shares if investors deposit ordinary shares in Hong Kong. Alibaba sold US$12.9 billion in shares in Hong Kong in November 2019, pioneering a path that many other Chinese companies are following, with one U.S. BABA share equivalent to eight of the Hong Kong stock 9988.

And the same Citibank analysts filed a fresh research note today, noting that, yes indeed, Alibaba may be registering a large number of ADS (which we all call ADRs because we're stuck in our ways!) to support future conversion between the New York and Hong Kong listings.

Softbank shares rose 5.9% in Japan in synchrony. Alibaba is by far the company's most-valuable holding, but Softbank is under pressure after selloffs in many of its other holdings. DiDi Global (DIDI) is still 72.2% below its listing price from last July due to regulatory pressure in China. DoorDash (DASH) is down 58.6% since November 15 as investors ditched "pandemic winners." DASH is now sitting just under its listing price of US$102 in December 2020.

Softbank, which owns the equivalent of 673.8 million ADRs in Alibaba, landed that stake when it led a syndicate investing US$20 million in the Taobao site operator way back in 2000. The holding is now worth US$82.1 billion, which actually surpasses Softbank's own market capitalization of US$78.5 billion.

Softbank reported earnings on Tuesday that saw net profit for the nine months through December fall 79.0% to ¥649 billion (US$5.6 billion) from the same time 12 months ago. Its record profits 12 months back were supercharged by the strong tech rally at the time.

Softbank's movements are also driven by the company's announcement on Tuesday that it will not proceed with plans to sell the British chip designer Arm to Nvidia (NVDA) . Softbank, which bought Arm for US$32 billion in 2016, could have seen the company sell for as much as US$80 billion, based on Nvidia's 76.0% stock runup in the last 12 months. Softbank says it will book a nonrefundable US$1.25 billion deposit paid by Nvidia as profit.

Softbank should still recoup a windfall. Founder Son says it will plan an initial public offering because the sale, first announced in September 2020 and priced then around US$40 billion, ran into problems getting regulatory approval in numerous jurisdictions: the United States, Britain, Europe, and China. Regulators are concerned about overconcentration in the semiconductor industry. Similarly, the US$4.9 billion purchase by the Taiwanese company GlobalWafers of the German chip supplier Siltronic collapsed last week when German regulators failed to approve it in time.

Alibaba's jump today still leaves the company down 54.7% in the last year, and 60.1% off all-time highs set in October 2020. It is not clear that China's regulator crusade against Big Tech is over there, and Chinese consumer sentiment has been dented by persistent Covid outbreaks. But you get the feeling that the tide will soon turn, making highly profitable Alibaba - due to report earnings on Feb. 15 - a hot property once again.

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