SoftBank offloads part of Alibaba stake to raise much-needed cash

Invested $20 million in 2000 and will pocket $34 billion and keep a slice worth more than that – for now

Japan's SoftBank Group will offload almost half its holdings in Chinese e-commerce giant Alibaba, netting over $20 billion to help it record a profit but casting doubts over Alibaba's prospects.

Disposing of a chunk of Alibaba appears to be an element of SoftBank's response to the $23.5 billion quarterly loss it posted earlier this week. The announcement of that loss opens with this observation: "The current equity market environment is challenging and may be prolonged" before suggesting offloading some of its stake "will further strengthen our defense against the severe market environment."

The transaction will see about ¥4.6 trillion ($34 billion) flow to SoftBank and push the group into a profit for the quarter ending September 30.

Once the deal is done, SoftBank will still hold around 14.6 percent of Alibaba, down from its current 23.7 percent.

SoftBank's first investment in Alibaba was made in 2000 when it sent $20 million to a company that, according to a Wall Street Journal report, SoftBank president Masayoshi Son hoped would become "the next Yahoo".

Turning $20 million into $34 billion, while retaining a stake worth north of $50 billion, is a far better result than Yahoo delivered as it slid to irrelevancy.

But SoftBank offloading such a huge slab of Alibaba also suggests the Japanese firm thinks the e-commerce giant's best days might be behind it.

Alibaba is beset by challenges. Founder Jack Ma dared to challenge China's government over its decision to regulate Alibaba's Ant Group finance subsidiary and found himself silenced and sidelined. China has also cracked down on numerous aspects of online business, creating new compliance chores for Alibaba. On top of that, Beijing has signaled it intends to ensure that no business gets so large it can dominate a field or introduce new risks to the nation's economy – and did so very much with an eye to curbing the power of what China calls "platform" companies that have earned enormous online followings.

Not to mention Chinese authorities remain displeased with Alibaba Cloud's role in a massive data leak.

If the domestic dramas detailed above weren't enough, Alibaba is at risk of losing its US listing.

Alibaba has tried to diversify into overseas markets, but recently reported a drop in offshore revenue and reportedly prepared to shed many jobs.

While SoftBank's losses were enormous, and offloading much of its Alibaba stake will allow it to post a quick turnaround, the question becomes whether Alibaba can reverse its fortunes.

If it can't, that could stall Alibaba Cloud's international expansion ambitions, which currently focus on Asian nations but include an intention to bolster presences elsewhere. Building new datacenters requires enormous quantities of capital. A reduced Alibaba could decide to spend that money elsewhere. ®