Alibaba To Raise $4.5B Through Convertible Bonds For Share Buybacks Amid Fierce Competition, Slow Recovery

In a bid to fund share repurchases, Alibaba Group Holding Ltd BABA has announced a $4.5 billion convertible bond issue. This move comes amid increasing competition and a sluggish Chinese economic recovery.

What Happened: Alibaba plans to issue convertible senior notes maturing in seven years with a coupon of 0.5%, reported The Wall Street Journal. The deal size could reach $5.0 billion if the option to purchase additional notes is exercised in full.

The notes can be exchanged for shares at an initial conversion price of about $105.04 per American depositary share, a 30% premium over Thursday’s closing price of $80.80. Alibaba plans to repurchase about 14.8 million ADS.

Fitch Ratings has assigned an A+ rating to the notes, expecting Alibaba to spend $11 billion to $13 billion on share buybacks over the next few fiscal years.

See Also: Goldman Sachs Raises Forecast For Chinese Market: Stock Ideas To Bet On Recovery Momentum

Alibaba’s buyback pace has accelerated as it faces mounting e-commerce competition and a sluggish Chinese economic recovery from the pandemic. The company spent a record $4.8 billion buying back its shares in the first three months of 2024 when it touched multiyear lows.

Why It Matters: Alibaba’s decision to raise funds for share buybacks comes at a time when the company is facing intense competition in the e-commerce sector. Its rival, JD.com Inc JD, also recently raised $2.0 billion through a five-year convertible bond for share repurchases. This move by Alibaba is indicative of the fierce competition in the Chinese e-commerce market.

Despite the challenges, Alibaba’s rival Pinduoduo Inc PDD has been experiencing explosive growth, with its revenue more than doubling. This growth has led to analysts predicting a major upside for Pinduoduo with new market openings and rising adoption.

On the other hand, Alibaba has been strengthening ties with luxury brand Louis Vuitton to boost AI-powered luxury retail, indicating its commitment to innovation and growth despite the economic challenges.

Amid these developments, Goldman Sachs has raised its forecast for the Chinese market, offering stock ideas to bet on recovery momentum.

The MSCI China Index, as tracked by the iShares MSCI China ETF MCHI, has risen 31% from its lows in late January and 19% in the past month, outperforming most developed and emerging market equity indices.

Read Next: 3 Stocks To Watch As Copper Surges To Record Highs: ‘Something Is Cooking In China’

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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote