Alibaba Group Holding BABA plans to issue U.S. dollars and Chinese yuan bonds to raise capital. The company aims to repay existing debt and support an ongoing stock buyback initiative.
The decision to tap the bond market comes as the company seeks to leverage low global interest rates, providing an opportunity to replenish its capital base while enhancing shareholder value.
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The exact principal amount, interest rates, and maturity terms for the bonds will be determined at the time of pricing, SCMP cites a filing with the Hong Kong Stock Exchange.
The issuance will likely generate up to $5 billion, with Reuters indicating the dollar-denominated bonds will have maturities of 5.5, 10.5, and 30 years.
The yuan-denominated bonds will carry tenors of 3.5, 5, 10, and 20 years, showcasing a broad range of options for potential investors.
Market analysts suggest that declining interest rates in the Asia-Pacific region have made debt issuance an attractive option for companies like Alibaba. This enables them to execute share buybacks and invest strategically without incurring high financing costs.
Kenny Ng Lai-yin, a strategist at Everbright Securities International, told the SCMP that this environment offers a unique chance for firms to enhance capital returns through debt financing.
Last week, Alibaba reported fiscal second-quarter 2024 revenue growth of 5% to $33.70 billion, beating the analyst consensus of $33.47 billion.
Taobao and Tmall Group revenue grew by 1% to $14.11 billion,
Alibaba International Digital Commerce Group’s revenue increased by 29% to $4.51 billion, and Local Services Group revenue grew by 14% to $2.53 billion.
Cainiao Smart Logistics Network Limited’s revenue increased 8% to $3.51 billion. Cloud Intelligence Group revenue grew by 7% to $4.22 billion.
As of September 30, Alibaba reported total outstanding liabilities of 202.2 billion yuan ($27.9 billion) in bank loans and bonds, marking an 18% increase since March.
The company raised $5.5 billion in May through a convertible bond issue. The current bond offering aligns with Alibaba’s aggressive stock repurchase program, initiated during the pandemic in 2020.
Yields on U.S. Treasuries are currently around 4.31% for five-year notes, 4.44% for ten-year notes, and 3.62% for thirty-year bonds. In contrast, Chinese government bonds offer significantly lower yields, with three-year and five-year bonds yielding 1.35% and 1.7%, respectively.
This disparity provides Alibaba with favorable conditions for its planned bond issuance, reducing the overall cost of borrowing.
The company’s strategic push to increase buybacks reflects a broader trend among top Chinese tech firms, driven by steep declines in stock valuations.
Alibaba’s shares have fallen approximately 70% from their peak in late 2020 despite continued growth in sales and profits due to economic weakness, domestic regulatory crackdown, and disappointing fiscal stimulus.
During the third quarter, Alibaba repurchased $4.1 billion worth of shares, reducing its outstanding share count by 2.1% from the end of June. The company’s CFO, Toby Xu Hong, emphasized the importance of these buybacks as a signal of confidence in Alibaba’s business outlook.
Michael Burry’s fund increased its stakes in Alibaba, JD.com Inc. JD, and Baidu Inc. BIDU, making Chinese tech its largest holdings.
Despite boosting exposure, Burry hedged risks by purchasing put options, signaling caution on potential market volatility.
Price Action: BABA stock is up 0.42% at $88.96 premarket at the last check on Monday.
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