Alibaba to sell up to US$5 billion of dollar bonds as analysts say risk from antitrust investigation is limited

Alison Tudor-Ackroyd
·4-min read

Alibaba Group Holdings is selling up to US$5 billion in international debt markets as analysts brush off the impact of an antitrust investigation into its mainland China e-commerce business.

The offering by the Hangzhou-based e-commerce behemoth includes a tranche of sustainability notes due in 2041, according to filings where Alibaba’s shares are listed in both the US and Hong Kong.

The senior unsecured notes will come in multiple tranches, with maturities of up to 40 years. Alibaba, which owns this newspaper, will fix the exact size of the offering and the bonds’ interest rates after discussing terms with fixed-income investors. It kicked off marketing calls on Wednesday, people familiar said.

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Alibaba unveiled the planned capital raising after reporting a 37 per cent surge in revenue for the quarter ended December, boosted by its extended Singles’ Day campaign last year and handily beating analysts’ estimates.

China’s antitrust watchdog, the State Administration of Market Regulation (SAMR), launched an investigation on December 24 into the company founded by entrepreneur Jack Ma. The investigation will look into the company’s business practices, including its exclusivity agreements.

“Alibaba can weather the potential outcomes of the investigation,” said S&P analyst Clifford Kurz.

Alibaba has said it has established a special task force to conduct internal reviews as part of its efforts to cooperate with the investigation.

Credit ratings agency Fitch said it believes the government’s antitrust push is aimed at preventing misconduct and ensuring the healthy growth of the industry over the long term.

“It is unlikely the stronger antitrust stance will have a substantial adverse impact on Alibaba’s credit profile as we expect the company to be able to maintain its market leadership and strong financial profile,” said Fitch analyst Kelvin Ho in a note to potential investors.

Moody’s was also optimistic about the outcome, noting the company’s track record of working with regulators to make operational changes without materially hurting its business profile.

Credit ratings agency Moody’s Investors Service gave the proposed US dollar senior unsecured notes an investment grade of “A1”, while Fitch rated the offering “A+”.

S&P Global Ratings assigned its “A+” long-term issue rating to the notes.

Fitch cited Alibaba’s strong product offerings and customer engagement, which drove a robust recovery in its domestic core commerce business from the hit from the coronavirus pandemic. The ratings are also supported by the group’s strengthened market leadership and improved monetisation.

The proceeds from the proposed senior unsecured notes, excluding the sustainability notes, will be used for general corporate purposes, including working-capital needs, repayment of offshore debt and potential acquisitions of or investments in complementary businesses.

Alibaba will use the proceeds from the sustainability notes to finance projects such as encouraging recycling of packaging at its logistics arm Cainiao and renewable energy to fuel its data centres.

Alibaba previously issued US$8 billion of bonds to investors in 2014, pricing a US$700 million bond at 4.5 per cent due 2034. In 2017 it sold US7 billion worth of debt, including a US$1 billion tranche at 4.4 per cent due in 2057.

Issuers are flocking to debt capital markets to lock in record low interest rates, including a host of other big tech companies. Apple is planning to sell as much as US$14 billion of debt.

Primary bond offerings from Asia-Pacific domiciled issuers reached an all time high last year with proceeds hitting US$3 trillion for the first time since data provider Refinitiv’s records began in the 1970s. China accounted for about three quarters of the region’s bond proceeds worth US$2.3 trillion, up 24.7 per cent from 2019, including a blockbuster US$6 billion dollar bond sale by social media and gaming giant Tencent.

Citigroup, Credit Suisse, Morgan Stanley, JPMorgan and China International Capital Corporation are joint bookrunners for the proposed offering. Citigroup is the sustainability structuring advisor.

The co-managers on the deal are ANZ, Bank of China, BNP Paribas, DBS, HSBC, ING, Mizuho and Wells Fargo, one of the people familiar said.

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