SoftBank Is Ready to Slash Its Massive Stake in Alibaba. Here’s Why.

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SoftBank

is positioned to sharply sell down its stake in Chinese tech giant

Alibaba

through a flurry of deals that have provided much-needed cash to the investment group amid a market downturn, according to a report.

The Japanese tech investor led by Masayoshi Son has raised as much as $22 billion in cash through the sale of prepaid forward contracts this year linked to more than one-third of its stake in

Alibaba

(ticker: BABA), the Financial Times reported.

Prepaid forwards are a type of derivative that allow SoftBank (9984.Japan) — which increasingly has turned to this method of raising cash — to retain the possibility of holding onto its shares, the report said, citing filings.

SoftBank has now sold more than half of its Alibaba holdings through forwards, according to the report, which would shrink its stake in the company below the threshold of retaining a board seat.

Shares in SoftBank gained 2.6% in Tokyo trading, with U.S.-listed Alibaba stock up 2.2% in premarket trading. Alibaba reports quarterly earnings later Thursday.

SoftBank, the sprawling Japanese investment group, under pressure from a tech stock rout this year that has seen public and private valuations collapse, owns almost 24% of Alibaba, according to FactSet data. SoftBank was an early investor in the company, with a $20 million funding round in 2000 setting the stage for Masayoshi Son’s rise to become one of the most influential investors in the tech space. 

An exit from Alibaba at current prices would still be painful for SoftBank, with shares in the Chinese group down more than 50% over the past year and the stock trading around its lowest levels since 2017. Alibaba’s market value has been battered along with much of the rest of the Chinese tech sector amid a regulatory crackdown in both Beijing and Washington as well as slowing growth in the e-commerce sector.

This is not the first indication that SoftBank has looked to slash its ownership in one of its crown jewels. 

More than 1 billion Alibaba shares that had not yet been on the American market— the company is also listed in Hong Kong — were registered with the Securities and Exchange Commission in February. At the time, analysts at Citi speculated that the move set the stage for a looming exit by a major investor whose shares were not already registered in the U.S., such as SoftBank, which invested in the group before it was public.

Write to Jack Denton at [email protected]