Jack Ma built up Masayoshi Son’s SoftBank war chest. Now, Son may be giving up on Ma

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Masayoshi Son, CEO of investing firm SoftBank, appears to be unwinding his investment in the Jack Ma-founded Chinese tech giant Alibaba, a move that would mark an unceremonious end to one of the most lucrative business partnerships in history.

Son’s SoftBank Group raised $22 billion by selling off roughly one-third of its Alibaba stake via derivatives contracts, according to a Thursday report in the Financial Times. Previous contracts have delayed the handover of shares for two years, according to the report. The stake sale is structured as a prepaid forward contract, meaning that it allows SoftBank to raise money immediately while giving the firm an option to buy back the shares at some point in the future.

That decision will have major consequences for both SoftBank and Alibaba. If SoftBank declines to buy back the shares, the firm will lose its seat on Alibaba’s board and could prevent SoftBank from recognizing its share of Alibaba’s income on its financial statements, according to the Financial Times.

Kai von Carnap, a Chinese tech analyst at the Berlin-based Mercator Institute for China Studies, says he does not expect SoftBank to buy back the Alibaba derivatives contracts given China’s ongoing tech crackdown and other headwinds Alibaba will likely continue to face in the Chinese market.

“Chinese investments right now are just a big powder keg of political risks,” he says. “I don’t see how in the next two years, the policy environment around China, Jack Ma, Alibaba, and Japanese-Chinese relations would change to a point where SoftBank will reconsider and buy back the shares.”

The decoupling of the two giants would be a remarkable development since SoftBank’s $20 million investment in Alibaba in 2000 generated a $150 billion return and transformed the Japanese firm into one of the most powerful investing companies in the world. Alibaba, too, may not have become China’s Amazon without Son buying into Ma’s vision and injecting $20 million into a young startup that, at the time, lacked a defined business model and had only raised $5 million.

“You can’t think about SoftBank without its investment in Alibaba,” says von Carnap. “And, vice versa, Alibaba would probably be a very different company without Softbank.”

SoftBank and Alibaba did not immediately respond to Fortune’s requests for comment.

SoftBank’s sale of the Alibaba derivatives comes at a difficult time for both firms.

Last Thursday, the Securities and Exchange Commission added Alibaba to a list of 150 Chinese firms that must comply with auditing requirements or get kicked off U.S. exchanges. The SEC action tagged Alibaba for a potential delisting of its New York stock since it’s unclear whether Beijing will grant the SEC access to Alibaba’s financial records. Alibaba’s share price plunged 10% after the news. Alibaba, for its part, has been preparing for a potential delisting. Alibaba announced in late July that it plans to apply to upgrade its listing status in Hong Kong from secondary to primary by the end of the year.

But even a primary listing in Hong Kong will not solve the problems Alibaba faces in its home market. Alibaba’s market cap has dropped by nearly $600 billion since its peak in October 2020, right before Beijing began a sweeping antitrust crackdown aimed at curtailing the power of Chinese tech giants. Alibaba has been at the center of China’s regulatory storm since Ma’s speech criticizing Chinese regulators in 2020 prompted Chinese President Xi Jinping to suspend the planned $37 billion IPO for Alibaba’s fintech affiliate, Ant Group. China’s government has since fined Alibaba billions for alleged antitrust violations. The firm’s e-commerce business has also struggled this year due to China’s harsh COVID lockdowns.

SoftBank, meanwhile, has had a lot more to worry about than Alibaba’s losses.

Last year, SoftBank invested $38 billion into 183 companies, a record-breaking figure for a single investor. But those investments have failed to pay off amid a downturn in tech markets, and the firm reported $27 billion in losses in the year ending March 31.

SoftBank may be motivated to sell its Alibaba stake precisely because of that cash crunch. In 2020, Alibaba shares comprised 60% of SoftBank’s total value. But after leveraging 80% of its Alibaba shares during the latest derivative selloff and previous ones, Alibaba shares now make up 23% of Softbank’s value.

“Alibaba is their only liquid asset, they don’t have any other large liquid assets,” Atul Goyal, a Jefferies analyst, told the Financial Times.

SoftBank’s derivative share sale is not the first time that the relationship between Son and Ma has shown signs of strain.

In May 2020, Ma stepped down from SoftBank’s board after SoftBank reported $18 billion in losses on its Vision Fund. Ma’s decision to step down is “sad but we will still keep in touch,” Son said at the time. “We will remain friends for the rest of our lives.”

Now, Ma and Son’s forever friendship will be tested once again as SoftBank appears to unwind its financial ties to Ma’s Chinese tech giant.

“This is a symbolic end… to a profound relationship between SoftBank and Alibaba,” says von Carnap.