Alibaba’s bond sale attracts US$38 billion worth of orders as investors shrug off antitrust fears and look to future of China’s booming e-commerce industry
- An avalanche of orders from a veritable Who’s Who of investors allowed the e-commerce giant to price its debt tighter than initial guidance
- The bond sale comes after Alibaba reported a 37 per cent surge in revenue for the quarter ended December
Alibaba Group Holding’s US$5 billion bond attracted an avalanche of orders from fixed-income investors, peaking at US$38 billion, on growing confidence that the e-commerce behemoth will emerge relatively unscathed from an antitrust investigation.
The scramble to buy the bonds allowed the platform company to sell its new dollar-denominated debt at a more advantageous price than initially expected, according to people familiar with the transaction.
“I’ve long been declaring that the regulatory threat is overblown, so I was supportive of the new dollar bonds,” said Brock Silvers, chief investment officer at Hong Kong-based investment firm Kaiyuan Capital.
The Hangzhou-based firm’s offering is its first foray into international debt markets since 2017 when it sold US$7 billion worth of bonds. The wait for Alibaba to come back to markets created pent up demand among investors, the people familiar said.
Sovereign wealth funds, pension funds and global asset managers from the US and Europe were among the investors who managed to squeeze into the deal, which was more than seven times over subscribed. The global investment community looked to other technology giants’ debt, such as bonds issued by Amazon, Google and Tencent, as proxies to calculate their bids.
The US$5 billion deal came in four parts with 10-year, 20-year, 30-year and 40-year due dates. Investors were particularly excited about Alibaba’s debut sustainability bonds, lauding its simple structure and clear earmarking of proceeds for green projects, such as more green buildings, recycling of packaging at its logistics arm, Cainiao, and making its power-hungry data centres more energy efficient.
After two days courting investors, Alibaba priced the four tranches of debt between 1 percentage point and 160 basis points over Treasuries with the same maturities. All of the prices tightened during marketing due to the strong demand, with the 20-year sustainability bonds coming in the most, according to terms sheets seen by the Post.
03:02
Amid pandemic, Chinese consumers spend US$74.1 billion during Singles’ Day online sales festival
Alibaba is riding the wave of investors hunting for yield as central banks unleash liquidity into capital markets to spur an economic recovery from the coronavirus pandemic. Over the past 12 months, companies have been able to issue longer-dated debt at historically low levels.
Alibaba’s 30-year notes carried a coupon of 3.15 per cent, and its 40-year bonds bear an interest of 3.25 per cent; lower than in 2017, when the company sold a 30-year bond with a coupon of 4.2 per cent and a 40-year bond with interest of 4.4 per cent.
Ratings agency Moody’s labelled the notes as investment grade “A1 Stable” while S&P and Fitch both said they were “A+ Stable”.
01:26
China kicks off antitrust probes into Alibaba over alleged monopolistic practices
China‘s online shopping gross merchandise value will likely expand at 12 per cent annually until next year and cloud-services by 35 per cent into 2023, according to consultancy iResearch. “Alibaba will be a key beneficiary of the trend due to its market leadership,” said Fitch ratings analyst Kelvin Ho.
When Alibaba released results, it also said that the firm had established a task force to conduct an internal review as part of its efforts to cooperate with an antitrust investigation launched by China’s State Administration of Market Regulation on December 24. The inquiry will look into the company’s business practices, including its exclusivity agreements with merchants.
Ma delivered a video speech to 100 rural Chinese teachers in January, marking his first public appearance in nearly three months after his controversial speech at a Shanghai financial forum on October 24. Although Ma retired from his official positions at Alibaba in 2019, the 56-year-old is still widely regarded as a key figurehead for his business empire and the face of China’s private business community.
“The trick is to differentiate between the risks for Alibaba and Ant,” said Silvers. While a government-imposed restriction on Alibaba’s use of exclusive arrangements should be manageable, new capital requirements for Ant would be significant and likely necessitate a new business model, he added.
Alibaba’s New York-listed American depositary shares have rallied on the easing of tensions, jumping 27 per cent from the low of US$211 plumbed on December 24. The most liquid of Alibaba’s existing bonds, its 3.4 per cent notes due 2027, were also higher at 111.916 in Asian trading on Friday.
The proceeds from the debt sale, excluding the sustainability notes, will be used for general corporate purposes, including working capital, repayment of offshore debt and potential acquisitions of or investments.
The active bookrunners on the deal are Citigroup, Credit Suisse, Morgan Stanley, JP Morgan and China International Capital Corporation. Citigroup is the sustainability bond’s structuring adviser.
Alibaba plans to settle the transaction by February 9.
