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Japanese chip-related stocks surged, with Kioxia up 7.3%, SoftBank Group up 5.4%, and Lasertec up 8.2%.Japans foreign exchange reserves stood at $1,207.5 billion in August, compared with $1,287.1 billion in the previous month.1. Monday: ① Data: Germanys July seasonally adjusted industrial production month-on-month; UKs August Halifax seasonally adjusted house price index month-on-month; Switzerlands August seasonally adjusted unemployment rate; Eurozones September Sentix investor confidence index, Eurozones final Q2 GDP annual rate, Eurozones final Q2 seasonally adjusted employment quarter-on-quarter rate; Chinas August foreign exchange reserves. ② Holiday: US and Canadian stock markets are closed on Monday for Labor Day; gold, silver, and oil trading ends early. 2. Tuesday: ① Data: Japans July trade balance; Germanys July seasonally adjusted trade balance; Frances July trade balance; US August NFIB small business confidence index, US August New York Fed 1-year inflation expectations; Chinas August trade balance in US dollars, Chinas August trade balance. 3. Wednesday: ① Data: Chinas August CPI year-on-year; Frances July industrial production month-on-month; US ADP employment change week-on-week for the week ending August 22. 4. Thursday: ① Data: US 10-year Treasury auction (to September 9) - winning yield, US 10-year Treasury auction (to September 9) - bid-to-cover ratio, US API crude oil inventories for the week ending September 4; Germanys final August CPI month-on-month rate; Eurozone ECB deposit facility rate (to September 10), Eurozone ECB main refinancing rate (to September 10); US initial jobless claims for the week ending September 5, US August PPI year-on-year rate, US August PPI month-on-month rate, US August existing home sales (annualized), US July wholesale sales month-on-month rate, US EIA natural gas inventories for the week ending September 4; Chinas August M2 money supply year-on-year rate. ② Events: EIA releases monthly Short-Term Energy Outlook report; OPEC releases monthly oil market report; Apple holds fall product launch event with the theme "Shine New Chapter"; ECB President Lagarde delivers a speech at the Bundesbank official dinner; TSMC releases August 2026 revenue report; ECB President Lagarde holds monetary policy press conference [simultaneous interpretation]. 5. Friday: ① Data: US EIA crude oil inventories for the week ending September 4, US EIA Cushing, Oklahoma crude oil inventories for the week ending September 4, US EIA strategic petroleum reserves for the week ending September 4; UK July three-month GDP month-on-month rate, UK July manufacturing output month-on-month rate, UK July seasonally adjusted goods trade balance, UK July industrial production month-on-month rate; Swiss August consumer confidence index; US August unadjusted CPI year-on-year rate, US August seasonally adjusted CPI month-on-month rate, US August seasonally adjusted core CPI month-on-month rate, US August unadjusted core CPI year-on-year rate, US September one-year inflation rate expectations preliminary value, US September University of Michigan consumer sentiment index preliminary value. ② Events: A new round of domestic refined oil price adjustments will begin; IEA releases monthly oil market report. 6. Saturday: ① Data: US total number of oil rigs for the week ending September 11. ② Events: ECB President Lagarde delivers a speech. On September 7th, US President Trump tweeted: "Many people have suggested changing the name of New Mexico. New Mexico has historically been one of the most fraudulent states in election history, so why not rename it NEW AMERICA? Its a much nobler and better name for this state with so much potential. Wow, I love that idea!"September 7th - British Chancellor of the Exchequer John Healy will deliver his first major speech on Monday, expected to place regional growth at the heart of his economic vision while pledging to maintain fiscal discipline. Speaking at a British manufacturing company, Healy is expected to announce a £150 million ($203 million) fund to support businesses in northern England and unveil plans to leverage public financial institutions to attract private investment across the UK. According to excerpts from his speech provided by Healys office, he will call these measures "the next chapter in the UK growth story."

How will SoftBank decrease its Alibaba stake without selling shares?

Aria Thomas

Aug 11, 2022 10:56

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By reducing its investment in Alibaba Group Holding from 23.7% to 14.2%, SoftBank Group Corp hopes to gain $34.1 billion.


However, the Japanese titan would not instantly sell its shares on the market. It utilizes "prepaid forward contracts," a complex derivative extensively employed by investors.


How these agreements function:

WHAT ARE FUTURE-PAYMENT CONTRACTS?

A prepaid forward contract is a type of derivative contract that enables investors to hedge equity investment risk.

HOW DOES IT WORKS?

The contract contains a floor price and a ceiling price, limiting the exposure of investors to the set price range.


Investors can either pay financial institutions in cash or physically deliver the shares to complete transactions.


"The investor is safeguarded against loss if the price of the shares falls below the floor. Alternately, if the company's growth exceeds the cap, the investor is not entitled to any of the upside." This was claimed by David Martinez, an associate at the legal firm Clifford Chance.

Exist other advantages to prepaid forward contracts?

According to Gareth Old, a partner at Clifford Chance, investors who wish to monetize holdings without selling the stocks utilize prepaid forward contracts often. Financial institutions advance the funds using the range's floor price and a discount rate.


Moreover, with prepaid forward contracts, investors only pay taxes on capital gains when the contract is finalized.

WHY HAS SOFTBANK DECIDED TO PREPAY THE CONTRACTS BY DELIVERING ALIBABA'S SHARES?

Due to the challenging market conditions, SoftBank has decided to transfer 242 million Alibaba shares to financial institutions instead of selling them directly.


SoftBank also indicated that the physical settlement will alleviate concerns over future cash outflows, reduce contract-related fees, and bolster its defenses against the market decline.


The Japanese company anticipates earning $34 billion in unrealized profits and settlement proceeds.


Bo Pei, senior equity research analyst at U.S. Tiger Securities, stated, "It is evident that they want cash." "The IT industry as a whole has decreased by 30% to 40%. SoftBank has always made substantial investments in these industries, but they now demand finance."

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