(Source – Bloomberg.com)
Alibaba Group Holding Ltd. has successfully sold $4.5 billion worth of convertible bonds, marking one of the largest such offerings in recent years. The proceeds from this strategic financial move are earmarked for share buybacks and investments in the company’s core businesses, including e-commerce and cloud services.
The seven-year notes, due in 2031, were priced with a 0.5% coupon and a 30% conversion premium. According to a source familiar with the matter, investor demand for these bonds was extraordinarily high, with orders oversubscribed multiple times globally.
This offering arrives at a critical juncture for Alibaba Group Holdings, which is headquartered in Hangzhou. The company seeks to bolster its capital reserves to reinvest in its primary businesses, which have faced significant challenges. Both its e-commerce and cloud segments have been under pressure, losing market share due to regulatory crackdowns by Chinese authorities and internal difficulties. A portion of the bond proceeds will be used to repurchase 14.8 million of its American depositary shares (ADS) and to fund future share buybacks, as confirmed in a company statement.
John Choi, an analyst at Daiwa Capital Markets Hong Kong Ltd., highlighted the strategic advantage of this move. “The 0.5% rate is favorable for obtaining offshore cash, allowing Alibaba Group Holdings to promptly execute a share buyback. This approach can be presented as beneficial to shareholders since the buyback will exceed the dilution caused by the bond issuance,” Choi explained.
The company is also leading efforts to reduce prices
Alibaba’s leadership, including Chairman Joe Tsai and CEO Eddie Wu, emphasized in a letter to shareholders that the company aims to balance returning cash to shareholders and investing in new ventures, particularly in artificial intelligence. The company is also leading efforts to reduce prices for cloud and AI services while increasing investments in AI, reflecting a global trend toward this technology.
Earlier this year, Alibaba expanded its share buyback program, approving an additional $25 billion in repurchases—one of the largest buyback initiatives in China’s corporate history.
The convertible bonds were marketed with an annual coupon range of 0.25% to 0.75% and a conversion premium of 30% to 35%. Despite the significant announcement, Alibaba’s ADRs closed down 2.3% at $80.80 on Thursday and remained largely unchanged in early Hong Kong trading on Friday.
The deal includes a greenshoe option that could increase the offering size by an additional $500 million, contributing to a particularly active period for convertible bond issuances. Globally, there have been $10.2 billion worth of such deals in the current month alone, surpassing April’s $4 billion total and continuing the trend of high issuance volumes seen earlier in the year.
In comparison, JD.com Inc., a major competitor, also engaged in the convertible bond market, raising $1.75 billion through bonds due in five years.
Alibaba’s convertible bond offering
Bloomberg Intelligence analysts Catherine Lim and Trini Tan noted that Alibaba’s convertible bond offering might attract closer scrutiny regarding its plans for a primary listing in Hong Kong by the end of August and its timeline for achieving significant returns on invested capital. They observed that Alibaba’s targeted use of bond proceeds for share purchases sets it apart from JD.com’s broader approach.
The convertible bond offering is scheduled to close on May 29, and holders will have the option to require Alibaba Group Holdings to repurchase their notes starting June 1, 2029. The deal was arranged with the assistance of major financial institutions, including Citigroup Inc., JPMorgan Chase & Co., Morgan Stanley, Barclays Plc, and HSBC Holdings Plc, as per terms reviewed by Bloomberg News.
