Japanese firm SoftBank has announced that it is liquidating $7.9 billion worth of its stake in Alibaba Group Holding Ltd. The sale will reduce SoftBank's share in Alibaba from 32.2 percent to about 28 percent.

The move is likely to smooth over SoftBank's financial crunch after the company's acquisition of a majority stake in the struggling Sprint Corp. Alibaba's stock price dwindled in the stock market after the announcement.

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SoftBank is expected to sell $500 million worth of Alibaba stock to an unnamed sovereign wealth fund while $2 billion worth of shares will be sold to Alibaba. SoftBank will also sell an additional $400 million worth of stock to the Alibaba Partnership. The Japanese company will further offload $5 billion of stock to institutional investors through convertible securities. These securities may be converted into Alibaba stock within three years.

Jack Ma, Executive Chairman of Alibaba, said, "As SoftBank looks to strengthen its own balance sheet, Alibaba determined that it was the best use of our capital to reinvest in our own business through an efficient buyback of a large number of shares in our own company that is accretive to our stockholders."

The proceed from SoftBank's sale of its stock is likely to be used to fund the company's debt repayments. SoftBank's net debt figure had ballooned to $51 billion at the end of March. This figure does not include borrowings at Sprint.

SoftBank is also looking to sell its majority stake in Supercell, to achieve more liquidity. The sale is expected to add $4 billion to the company's coffers. Supercell makes mobile games including popular titles such as 'Clash of Clan.'

SoftBank Chief Executive Masayoshi Son will continue to hold a director position at Alibaba. Similarly, Jack Ma will also retain his seat on the board of Softbank.

TagsSoftBank, Alibaba