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(Reuters) - SoftBank Group Corp said it will sell at least $7.9 billion of shares in Alibaba Group Holding Ltd - a move that will cut the Japanese firm's debt amid worries about losses at its U.S. telecoms unit Sprint Corp.
The transaction marks the first sale of shares in the Chinese e-commerce giant by its largest shareholder since SoftBank began investing in the company in 2000, and will reduce its stake to around 28 percent from 32.2 percent. The two companies said they would maintain a strategic partnership.
Investors have been worried about finances at the Japanese internet and telecoms company since its 2013 acquisition of a majority stake in No. 4 U.S. wireless carrier Sprint Corp which has been burning cash amid fierce competition for subscribers.
Hideaki Tanaka, an analyst at Mitsubishi UFJ Morgan Stanley, said the move would be positive for SoftBank's shares.
"Although Softbank is stepping up investment in Internet firms, it is also making serious efforts to improve its financial standing," he wrote in a note to clients.
Shares in SoftBank finished flat on Wednesday and are down 15 percent from a year ago due to concerns about its heavy debt burden. Shares in Alibaba fell 2.8 percent in extended trading a day earlier.
The planned share sale will include $5 billion to $6 billion of stock that will be sold by private placement to institutional investors by a SoftBank-controlled trust. Morgan Stanley and Deutsche Bank will manage that portion of the sale.
Another $2 billion worth of stock will be bought by Alibaba using cash on hand and $400 million will be bought by the Alibaba Partnership, a 34-person group made up of Ma and other Alibaba founders and executives. An additional $500 million worth of stock is set to be sold to an unidentified sovereign wealth fund.
SoftBank Chief Executive Masayoshi Son will remain a director at Alibaba, while Alibaba Executive Chairman Jack Ma will remain on the board of SoftBank.
SoftBank had also entered into a lockup agreement with Alibaba under which it will not transfer any Alibaba shares held by the company for six months.
SoftBank had interest-bearing debt of 11.9 trillion yen ($107 billion) as of end-March, including 4 trillion yen at Sprint. Its debt-equity ratio stands at 4.56, much higher than the industry median of 0.32, according to Thomson Reuters data.
In addition to the Alibaba stock sales, media reports have also said SoftBank is weighing a sale of its stake in Finnish smartphone game maker Supercell to lower its debt.
SoftBank is known as a canny investor in raft of internet firms, ranging from Yahoo Japan to Indian ride-sharing firm Ola. Its initial investment in Alibaba was just $20 million.
Some analysts said the timing of SoftBank stock sale was not auspicious given that Alibaba unnerved investors last week when it reported that the U.S. Securities and Exchange Commission was investigating its accounting practices.
But Stifel analyst Scott Devitt 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 said in a note.
The news also comes amid speculation that U.S. web company Yahoo Inc may be looking at a disposal of its 15 percent stake in Alibaba, along with a possible sale of its core business.
An Alibaba spokeswoman declined to comment on the Yahoo-owned stake, and Yahoo did not respond to a request for comment.
Reporting by Narottam Medhora in Bengaluru and Makiko Yamazaki in Tokyo; Additional reporting by Peter Henderson and Liana Baker in San Francisco, and Umesh Desai in Hong Kong; Editing by Edwina Gibbs