(Reuters) - Japanese telecommunications and internet firm Softbank Group Corp (T:9984) said on Tuesday it will sell at least $7.9 billion (£5.4 billion) of shares in Chinese e-commerce company Alibaba Group Holding Ltd (N:BABA) in order to raise funds to reduce its debt.
The transaction marks the first sale of Alibaba shares by its largest shareholder since Softbank began investing in the company in 2000. Softbank's Alibaba stake will fall to about 28 percent of the Chinese firm from 32.2 percent in March.
Both companies said they would maintain a strategic partnership. Softbank Chairman and Chief Executive Masayoshi Son will remain a director at Alibaba, while Alibaba Executive Chairman Jack Ma will remain on the board of Softbank.
Shares of Alibaba fell 2.8 percent in extended trading on Tuesday.
The deal includes a $2 billion sale of shares to Alibaba itself, a sale of $400 million in shares to the Alibaba Partnership, a 34-person group made up of Ma and other Alibaba founders and executives, a $500 million sale of shares to an unidentified sovereign wealth fund, and an offering by a new Softbank-controlled trust of $5 billion to $6 billion in securities that convert in three years into Alibaba stock, Softbank said.
Stifel analyst Scott Devitt in a note said that he maintained a "buy" rating on Alibaba after the Softbank sale. "We do not view this as a shift in confidence from a major investor. In fact, it could remove an overhang of expectation of such an event," he wrote.
Alibaba unnerved investors last week when it reported that the U.S. Securities and Exchange Commission was investigating its accounting practices for its stake in a logistics firm, related-party transactions, and operating data of its annual "Singles' Day" sale.
Softbank, owner of U.S. telecom company Sprint Corp (N:S), said the stock sales were part of a "transformational strategy" to increase its own liquidity cushion and "enable flexible and prudent financial management."
Alibaba said it will buy the $2 billion of its shares with cash on hand.
In connection with the transaction, Softbank also entered into a lockup agreement with Alibaba under which it will not transfer any Alibaba shares held by the company for six months.
U.S. web company Yahoo Inc (O:YHOO) has been exploring a sale of its core business. It also has been investigating how to dispose of its 15 percent stake in Alibaba, but that potential sale has been complicated by concerns that Yahoo would incur a major tax bill. People familiar with the matter say Alibaba is not interested in buying the stake from Yahoo at a high price.
An Alibaba spokeswoman declined to comment on the Yahoo-owned stake, and Yahoo did not respond to a request for comment.
Morgan Stanley and Deutsche Bank (DE:DBKGn) will manage the sale of the $5 billion in securities, according to a statement of the offering's terms.