Alibaba Issues $4.5 Billion of Convertible Debt to Fund Buybacks
Alibaba's $4.5B Gamble: Debt for Buybacks?
Alibaba Group Holding Ltd. has issued $4.5 billion in convertible bonds to fund share buybacks and invest in its core businesses, including e-commerce and cloud services. The seven-year notes, with a low coupon rate of 0.5% and a 30% conversion premium, were highly sought after, indicating strong investor confidence. This strategic move is part of Alibaba's broader plan to balance shareholder returns with business investments, amidst a challenging regulatory environment in China.
What are the core businesses that Alibaba intends to invest in with the capital raised from the bond offering?
Alibaba plans to invest the capital raised from its $4.5 billion convertible bond offering into its core businesses of e-commerce and cloud computing. These sectors have experienced market share losses due to regulatory pressures and internal challenges, prompting Alibaba to seek additional funds to bolster these key areas of its business. The investment aims to rejuvenate and expand Alibaba's capabilities in these critical sectors, ensuring continued growth and competitiveness in the market.
What are the terms of the convertible bonds issued by Alibaba, including the coupon rate and conversion premium?
Alibaba Group Holding Ltd. issued convertible bonds valued at $4.5 billion with specific financial terms. The bonds, set to mature in seven years (due in 2031), were offered with a coupon rate ranging between 0.25% to 0.75%. Additionally, these bonds were issued with a conversion premium of 30% to 35%. This means that the price at which the bondholders can convert their bonds into shares is set at 30% to 35% higher than the stock price at the time of the bond's issue56.