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Alibaba is considering the sale of convertible bonds, following JD.com
(Bloomberg) — Alibaba Group Holding Ltd. is seeking to raise $4.5 billion in a convertible bond sale, following a $1.75 billion offering from rival Chinese online retailer JD.com Inc.
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Hangzhou-based Alibaba plans to use the proceeds to fund share buybacks, it said in a statement on Thursday, confirming an earlier Bloomberg News report. The offer includes a so-called greenshoe option that could increase the size of the deal by $500 million.
Alibaba’s American depositary shares fell as much as 2.3% on Thursday morning. They were down 1.2% at 10:08 a.m. in New York, giving the company a market value of about $175 billion.
Alibaba needs capital to invest in its core e-commerce and cloud businesses, both of which have lost market share during the sector’s crackdown by Chinese authorities and subsequent internal turmoil. It is leading the way in reducing prices on cloud and artificial intelligence services, while also starting to increase bets on AI, a focus of global investment activity.
The company’s chairman, Joe Tsai, and CEO, Eddie Wu, said in a letter to shareholders today that they are seeking to balance returning cash to investors with investment in new and existing businesses, including in artificial intelligence.
The company approved an expansion of a share buyback program earlier this year, adding $25 billion in share buybacks – one of the largest ever in China.
Bloomberg News reported on Thursday that Alibaba was discussing a potential $5 billion convertible bond offering with banks. The Chinese technology company is offering an annual coupon of 0.25% to 0.75% for the bonds, which mature in seven years and are non-callable for the first five years, according to terms of the deal seen by Bloomberg. The notes will have a conversion premium of 30% to 35%, the terms show.
Citigroup Inc., JPMorgan Chase & Co., Morgan Stanley, Barclays Plc and HSBC Holdings Plc are helping close the deal.
Part of the proceeds from the convertible bond offering will be used to repurchase some of Alibaba’s U.S.-listed American depositary shares at the time the deal is priced, as well as to fund future repurchases. The proceeds will also be used to pay for so-called “capped call transactions”, which effectively reduce potential dilution for shareholders when the bonds are eventually converted into shares.
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Read more: Jack Ma buys Alibaba shares to show support for struggling empire
Alibaba’s latest quarterly net profit fell 86% from a year earlier following an unexplained writedown for losses in its publicly traded holdings, which range from AI firm SenseTime Group Inc. to brick-and-mortar chain Sun Art Retail Group Ltd. increased spending to fend off competitors.
JD.com’s convertible bonds mature in five years and have a 0.25% coupon.
–With assistance from Sarah Zheng and Julia Fioretti.
(Updates with Alibaba statement, term sheet details from first paragraph.)
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