Alibaba (BABA) Stock Pops After SoftBank Denies Stake Sale

Alibaba’s (NYSE: BABA) registration of new American Depositary Shares (ADS) is not linked to any planned future transactions by SoftBank (OTC: SFTBY), the Japanese conglomerate said in a statement today.

"The registration of the ADR conversion facility, including its size, is not tied to any specific future transaction by SBG," SoftBank told Reuters.

In the past, SoftBank has leveraged Alibaba shares as collateral for loans and reduced its stake with derivatives to take advantage of the company’s share price surge.

Last week, Chinese e-commerce giant Alibaba filed to register 1 billion ADS, a move which Citibank described as a potential sell move by Softbank.

The bank issued a research note on Wednesday, saying the Chinese company may have filed to register new ADS shares to support shareholders in their efforts to convert Alibaba’s Hong Kong-listed shares to those listed in New York.

Masayoshi Son, CEO of SoftBank, said he was surprised by Alibaba’s move and added that the Japanese conglomerate did not demand the filing.

SoftBank’s 25% stake in Alibaba is currently valued at around $82 billion, with rumors going around that the conglomerate may be considering monetizing more of the holding. The Japanese firm invested $20 million in Alibaba back in 2000.

Citi analyst Alicia Yap reflected on the filing with the following comments:

“We see the rationale for the registration as being the deposit of ordinary shares held by large shareholders and the use of ADS in future equity incentive plans. Since ADS converted to HK shares are canceled and thus reduce the ADS outstanding, and as conversions have increased in recent months amid ADR de-listing worries, we believe the current ADS outstanding threshold might be running low, potentially creating a problem for any shareholders wanting in future to convert their HK/Cayman shares to ADS. As such, BABA might have registered in advance a large number of ADS to support any future conversion plans of shareholders,” Yap wrote in a memo.

Shares of Alibaba plummeted roughly 60% from October 2020 as a result of a regulatory crackdown by the Chinese government against tech companies.

Alibaba stock price is up 1.5% in pre-open Wednesday.

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