Alibaba heads south on SoftBank share sale speculation

Feb. 07, 2022 10:47 AM ETAlibaba Group Holding Limited (BABA)By: Rex Crum, SA News Editor59 Comments

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Alibaba (NYSE:BABA) shares fell 6%, Monday, on speculation that SoftBank may be in line to sell at least some of its stake in the Chinese Internet and e-commerce giant.

Citi analyst Alicia Yap said in a research note that Alibaba's (BABA) plans to register 1 billion new American depository shares [ADS] in the U.S. may be a sign that SoftBank intends to sell some of the 5.39 billion Alibaba (BABA) ordinary shares it owns. Citi said that SoftBank's stake is the equivalent of almost 674 million ADSs, or nearly 24% of Alibaba (BABA).

Last Friday, Alibaba (BABA) filed with the U.S. Securities and Exchange Commission to register 1 billion new ADSs, with each of those representing eight ordinary shares of Alibaba (BABA) stock. Yap said what makes the ADS registration unique is that its doesn't indicate the issuing of new stock, and holders of ordinary stock that hasn't been registered with the SEC will be able to sell their shares in ADS instead of as ordinary shares on the Hong Kong Stock Exchange.

"Since SoftBank has been a pre-IPO investor, we believe a large proportion of those shares have not been previously registered as ADS," Yap said.

Last week, Mizuho Securities analyst James Lee left his buy rating on Alibaba's (BABA) stock unchanged, but dropped his price target to $180 a share from $215, saying that there are signs the company had a "challenging quarter" at the end of 2021.

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