(Bloomberg) — Alibaba Group Holding Ltd. sold $4.5 billion worth of convertible bonds in one of the largest such offerings in recent years, as the company seeks to buy back more shares and invest in its business .
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The Hangzhou-based company priced the bonds at seven years, due 2031, with a coupon of 0.5% and a conversion premium of 30%. Orders for the bonds were repeatedly oversubscribed, in response to demand from investors around the world, a person familiar with the matter said, asking not to be identified because the information is confidential.
The offering comes as Alibaba needs capital to invest in its core e-commerce and cloud businesses, both of which have lost market share amid Chinese authorities’ crackdown on the sector and subsequent internal unrest. followed. Part of the proceeds from the offering will be used to repurchase 14.8 million of its American depositary shares at the time the transaction is priced, as well as to fund future repurchases, it said in a statement. communicated.
“The move is an opportunity to obtain overseas liquidity on favorable terms, at a rate of 0.5%,” said John Choi, an analyst at Daiwa Capital Markets Hong Kong Ltd. “This way, they can immediately begin executing a stock buyback, which the company can say is more beneficial to shareholders as the buyback will be greater than the dilution.
Alibaba is seeking to balance returning cash with investing in existing and new businesses, including artificial intelligence, Chairman Joe Tsai and Chief Executive Officer Eddie Wu said in a letter to shareholders on Thursday. It is also leading the way in reducing prices for cloud computing and artificial intelligence services, while starting to step up its bets on AI, a hotbed of global investment activity.
The company approved the expansion of a share buyback program earlier this year, adding $25 billion in buybacks – one of the largest ever in China.
The company marketed the convertible bonds at an annual coupon of 0.25% to 0.75% and a conversion premium of 30% to 35%, according to terms of the deal previously reviewed by Bloomberg News. ADRs closed down 2.3% at $80.80 on Thursday. Stocks were little changed Friday in early trading in Hong Kong.
The offering — which the company said included a so-called green shoe option that could increase the deal size by $500 million — adds to an already busy month for convertible bond issuance. Globally, the amount of such transactions reached $10.2 billion this month, eclipsing the $4 billion recorded in April, after a pause for the earnings season interrupted a streak of more of $10 billion for several months, according to data compiled by Bloomberg.
Rival Chinese online retailer JD.com Inc. sold $1.75 billion worth of convertible bonds maturing in five years earlier in the week.
What Bloomberg Intelligence says:
Alibaba’s convertible bond offering could increase scrutiny over changes to its plans for a primary listing in Hong Kong by the end of August and the timetable for achieving a double-digit return on invested capital. The company’s intention to use bond proceeds to buy stock was more focused than JD.com’s. — analysts Catherine Lim and Trini Tan.
The offering is expected to close on May 29, the company said. Convertible bond holders will be able to request Alibaba to repurchase all or part of their bonds on June 1, 2029.
Citigroup Inc., JPMorgan Chase & Co., Morgan Stanley, Barclays Plc and HSBC Holdings Plc helped close the deal, according to terms previously viewed by Bloomberg News.
–With help from Shikhar Balwani, Amy Or, Michael Hytha and David Morris.
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