On August 10, Softbank group announced that the board of directors had approved the early share settlement of a number of prepaid forward contracts (a derivative) related to Alibaba, involving at most about 242 million shares of the company's American Depositary Shares (each representing eight ordinary shares of the company).
Alibaba announced that the shares involved in the settlement account for about 9% of the total issued shares of Alibaba.
The physical settlement will start in mid August and is expected to be completed by the end of September. Specifically, Softbank group will transfer about 1.936 billion ordinary shares of Alibaba to its financial subsidiaries at fair value, amounting to a maximum of about 242 million ADRs. The sale will generate 4.6 trillion yen (about US $34.5 billion). Softbank group said that the settlement of these prepaid forward contracts would not cause the counterparties of financial institutions to sell Alibaba shares to the market because they had previously hedged in the market.
ccording to a report by the financial times in early August, since October last year, Softbank has transferred 40 million Alibaba shares to settle the transactions concluded in previous periods. This year's record forward selling speed (involving more shares than the total of the previous three years) means that Softbank may use more than 80% of its Alibaba shares for derivatives transactions or pledge its shares as margin loans. As of the end of March this year, Softbank had pledged 164 million shares of Alibaba shares as collateral for a loan of US $6 billion.
As of the closing of Hong Kong shares on August 10, Alibaba Hong Kong shares fell 1.84% to close at HK $87.95. As of the closing of US stocks on October 10, Alibaba rose 1.35% to close at US $92.42, with a market value of US $244.7 billion.