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Alibaba’s $38 Billion Bond Sale Shows Jack Ma Fans...

Business Maverick

Business Maverick

Alibaba’s $38 Billion Bond Sale Shows Jack Ma Fans Still Believe

Jack Ma, chairman of Alibaba Group Holding Ltd., left, gestures while speaking during a fireside interview at the Viva Technology conference in Paris, France, on Thursday, May 16, 2019. Donald Trump’s latest offensive against China’s Huawei Technologies Co. puts Europe in an even bigger bind over which side to pick, but France's President Emmanuel Macron is holding the line.
By Bloomberg
05 Feb 2021 0

Alibaba Group Holding Ltd. pulled off Asia’s largest dollar bond sale in eight months, with investors giving a loud vote of confidence in the e-commerce giant’s long-term prospects amid easing tensions with Chinese regulators.

Alibaba raised $5 billion via a four-tranche offering late Thursday, receiving more than $38 billion in orders at the peak, according to people with knowledge of the matter. The notes, comprising 10-year, 20-year, 30-year and 40-year maturities, were priced at 30 basis points to 40 basis points tighter than initial price guidance, as measured in yields above comparable U.S. Treasuries, said the people, who aren’t authorized to speak publicly and asked not to be identified.

The new dollar debt sale is the biggest in Asia since a $6 billion issuance by rival Tencent Holdings Ltd. in May. It comes amid growing expectations that Jack Ma’s tech empire may have avoided the worst-case scenarios – which had ranged from a government-led takeover to a break-up of his companies — after the billionaire entrepreneur briefly returned to public sight last month and as Ant Group Co. began its lengthy overhaul process. Washington’s decision to drop deliberations of an investment ban on the firm and Alibaba’s consensus-beating quarterly sales performance also helped ease concerns about its future amid a regulatory crackdown.

“Alibaba bonds have been well received in the market, with pricing having tightened significantly from its initial guidance. Approval of Ant’s restructuring plan has reduced uncertainty over the regulatory environment, which contributed to greater appetite for Alibaba’s new issuance,” said Chang Wei Liang, a macro strategist at DBS Bank Ltd. in Singapore.

Alibaba’s existing dollar notes and its shares rallied Thursday after Bloomberg News reported that affiliate Ant Group and Chinese regulators agreed on a restructuring plan that will turn Jack Ma’s fintech giant into a financial holding company. While this would make Ant subject to capital requirements similar to those for banks, analysts say the agreement suggests it’s now less likely to have to spin off portions of its businesses. Meanwhile, Reuters reported that Ant may hive off its consumer data operations, a concession to regulators that may enable the company to revive plans for an initial public offering that had been abruptly halted in November.

Day Two Of The World Economic Forum (WEF) 2020
Daniel Zhang, chief executive officer of Alibaba Group Holding Ltd., reacts during a panel session on day two of the World Economic Forum (WEF) in Davos, Switzerland, on Wednesday, Jan. 22, 2020. World leaders, influential executives, bankers and policy makers attend the 50th annual meeting of the World Economic Forum in Davos from Jan. 21 – 24.

Alibaba owns roughly a third of of Ant and Chief Executive Officer Daniel Zhang told analysts on Tuesday that the company was unable to assess the impact of the company’s ongoing restructuring on its business, though he added that only “a very small percentage” of Ant’s credit plans are used to make payments on its market places. The online retailer, which is facing its own antitrust investigation, has set up a special taskforce to conduct internal reviews and is actively communicating with antitrust regulators on complying with their requirements, Zhang said.

The company on Tuesday reported a stronger-than-expected 37% increase in quarterly sales, adding that it plans to continue investing for long-term growth in areas like cloud and artificial intelligence. “Alibaba has multiple growth drivers in the years ahead,” Jefferies analyst Thomas Chong wrote in a note after the earnings.

Alibaba was originally aiming to raise at least $5 billion via a debt sale that could’ve been increased to $8 billion depending on the reception, Bloomberg reported in early January. Investors had wondered then whether the company could pull off the deal as founder Ma hadn’t been seen in public since his Internet empire was hit with growing antitrust scrutiny. He’s since made an appearance in a live-streamed video chat.

The firm raised cash partly for general corporate purposes, including working capital needs, repayment of offshore debt, and potential acquisitions of or investments in complementary businesses, according to the people familiar with the deal. The 20-year tranche of Alibaba’s new offering is its first sustainability bond.

Tenor Initial Price Guidance Final Price Guidance Spread
$1.5b 10yr +130bps area +105bps area (+/-5) +100bps
$1b 20yr +140bps area +105bps area (+/-5) +100bps
$1.5b 30yr +150bps area +125bps area (+/-5) +120bps
$1b 40yr +160bps area +135bps area (+/-5) +130bps

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