It also said Alibaba is expected to cease to be an equity method associate of the company, which changes the way Alibaba’s profits are recorded on SoftBank’s books. SoftBank said it would continue to maintain a good relationship with Alibaba.

SoftBank has been using its assets to raise cash after it suffered big losses on investments in technology startups. The company said Monday that it recorded a loss equivalent to $23 billion in the April-June quarter, mostly as a result of investments that turned sour.

The moves relate to contracts SoftBank has made with financial institutions in recent years under which it raises cash using its Alibaba shares. SoftBank has said it can settle the contracts later either by paying cash or by giving up control of the Alibaba shares. It said the reduction in its stake is happening because it has decided to use the latter method, known as physical settlement, for up to 242 million American depositary receipts of Alibaba.

SoftBank said it expected a contribution to pretax income of about 4.6 trillion yen, equivalent to $34 billion, as a result of the physical settlement.

Alibaba at its peak accounted for more than half of SoftBank’s total assets. But after Alibaba’s share price fell sharply during China’s crackdown on its technology companies, its significance to SoftBank lessened. As of June 30, the Alibaba holding accounted for about one-fifth of SoftBank’s net asset value, SoftBank said this week.

SoftBank founder and Chief Executive

Masayoshi Son

long served on Alibaba’s board, and Alibaba co-founder

Jack Ma

served on SoftBank’s board. They stepped down from those roles two years ago.

Write to Kosaku Narioka at kosaku.narioka@wsj.com