SoftBank Group Corporation, a Japanese multinational conglomerate, has decided to sell a significant portion of its stake in Alibaba Group Holding Ltd, one of China’s largest e-commerce companies, according to a report from the Financial Times. The sale is part of SoftBank’s strategy to raise funds and reduce debt, and it could have significant implications for both companies.

Share price of softbank closed down 1% on Thursday, compared to a 0.3% rise in the broader market. Meanwhile, after the report, Share price of Alibaba fell as much as 5.2% in Hong Kong before recovering to a 2% loss. SoftBank’s decision to sell its stake in Alibaba is unsurprising, as the company has been seeking ways to monetize its holdings in profitable companies. However, the timing of the sale is notable, as valuations of China’s big tech firms have begun recovering this year after two years of heightened regulatory scrutiny.

SoftBank’s investment in Alibaba began more than two decades ago with just $20 million in spending. The Japanese conglomerate has been gradually reducing its stake in the company, with a $34 billion gain recorded last year after cutting it to 14.6% from 23.7%. SoftBank has sold about $7.2 billion worth of Alibaba stocks this year through prepaid forward contracts, with forward sales showing that the stake will eventually fall to 3.8% from almost 15%.

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SoftBank’s decision to sell its stake in Alibaba may respond to the changing regulatory environment in China’s internet sector. SBI Securities analyst Shinji Moriyuki said, “China’s regulatory environment in the internet sector turned drastically tougher in recent years, and this is SoftBank simply responding to the changing environment, as it has already been doing.” SoftBank’s decision to sell its stake in Alibaba could also indicate that the company is shifting to a more defensive mode to address an uncertain business environment.

The sale of SoftBank’s stake in Alibaba could have significant implications for both companies. Alibaba has lost more than two-thirds of its worth from its peak in late 2020 as a result of intensified regulatory action in the technology industry, which included a sizable punishment for Alibaba and an examination of founder Jack Ma’s business empire. The potential impact of the sale on Alibaba’s financial performance, market valuation, and investor confidence is still being determined. However, the news of SoftBank’s sale caused Alibaba’s stock to tumble, indicating that investors may be concerned about the company’s future.

SoftBank’s future plans following the sale of its stake in Alibaba are also unclear. However, the corporation hopes to float British chip creator Arm this year in an initial public offering (IPO) that would increase by at least $8 billion. SoftBank’s investment strategy and plans for reinvesting the proceeds from the sale of its Alibaba stake have yet to be revealed.