(Yicai Global) Aug. 11 -- SoftBank Group, the largest shareholder of Alibaba Holding Group, plans to bolster its finances by booking a USD34.5 billion gain from a reduction of its stake in the Chinese e-commerce giant.

SoftBank will pare its stake by settling prepaid forward contracts that represent about 242 million American depositary receipts from this month through Sept. 30, Hangzhou-based Alibaba said in a bourse filing yesterday. That will lower Softbank’s stake to 14.6 percent from 23.7 percent.

Softbank has been in a loss situation for more than 3 years. The Japanese investment giant recorded its first significant loss of USD10.2 billion in 2019 due to a plunge in global tech stocks and the depreciation of the Japanese yen. In the first quarter of fiscal 2022, the group logged a USD24.5 billion loss. 

Alibaba has had its own share of problems dealing with a regulatory clampdown over the past two years. The company is seeking to turn its Hong Kong listing into a primary one as its US-traded stock could be delisted if the firm does not open its books to US inspectors over the next three years.

SoftBank does not expect the move to result in any further sale of Alibaba stock in the market as the prepaid forward contracts were hedged during the original agreements. These types of derivatives function almost like options, but set up a schedule of prepaid payments ahead of the delivery of equity. 

Though SoftBank will remain the sole investor with a stake bigger than 5 percent in Alibaba, it will lose the right to nominate a director to Alibaba’s board after its stake dips below 15 percent. Kabir Misra currently represents SoftBank at the Chinese firm after Softbank founder Masayoshi Son announced his departure from the Alibaba board in 2020.

Alibaba's stock price rose despite the announcement. Its Hong Kong-listed equity [HKG: 9988] gained 4.3 percent to close at HKD91.75 (USD11.80). In New York yesterday, Alibaba [NYSE: BABA] rose 1.4 percent to USD92.43.

Editor: Emmi Laine