Alibaba never does anything in half measures and, having already completed the world's biggest IPO, the group is now preparing to launch Asia's largest ever bond offering. Roadshows will begin on Monday for a debut dollar-denominated 144a transaction, which could raise up to $8 billion.
The A1/A+/A+-rated group has mandated the same banks, which executed its $8 billion syndicated loan earlier this year – Citigroup, Deutsche Bank, JPMorgan and Morgan Stanley, plus Credit Suisse and Goldman Sachs. Co managers will be BNP Paribas, DBS, HSBC, ING and Mizuho.
The roadshow team has been split in two, with CFO Maggie Wu leading presentations in Hong Kong on November 17, followed by Singapore on November 18 and London on November 19. A second team led by senior vice-president, Michael Yao, will be in Boston on Monday then New York on Tuesday and Wednesday.
Investors will be keen to hear the group's financial strategy from Wu who recently took up the helm as CFO after co-founder Joe Tsai became executive vice chairman. The Chinese ecommerce giant has plenty of room to take on debt since it runs a net cash position and the main question will be whether it can achieve the same kind of pricing premium as it has for its equity.
Alibaba's share price has soared since it listed in mid-September at $68 per share. At Thursday's close in New York, the stock was trading at $114.8, up 68.8% in the space of two months.
With a market capitalisation of $283 billion it is now China's largest listed company ahead of China Mobile on $249.8 billion. It is also one of its most expensive – trading on a consensus p/e ratio of 52.8 times 2015 earnings.
Alibaba has opened up a huge premium to its nearest comparables Tencent and Baidu, which are respectively valued at 30 and 27 times 2015 earnings.
Both companies have dollar-denominated bonds outstanding, although Alibaba will almost certainly price through them, not least because it has a two notch higher rating from both Moody's and Standard & Poor's.
Baidu's 3.5% 2022 bonds are currently being traded on a bid-offer spread of 138bp/133bp over 10-year Treasuries, while its 2.75% 2019 bonds are bid at 105bp over five-year Treasuries.
Tencent's 3.375% 2019 bonds are at trading at 130bp/125bp over five-year Treasuries.
Given that Alibaba already has three and five-year facilities in the syndicated loan market, it seems likely to use the bond issue to push its yield curve out and re-finance its existing debt. The preliminary offering prospectus suggests the issuer will launch a floating rate note and four tranches of fixed rate bonds across the entire yield curve.
Further down the curve, there are currently few 10-year bonds in the overall Greater China sector with a rating as high as Alibaba's. Most are energy-related, which means Alibaba will bring welcome diversity.
Alibaba's closest comparables in terms of rating are China National Petroleum Corp (CNPC), Sun Hung Kai Properties (SHK) and Hong Kong & China Gas Company. All have the same A1/A+ ratings.
CNPC and SHK both have 2023 bonds outstanding. CNPC's 3.4% 2023 is is currently bid at 145bp over Treasuries, while SHK's is bid at 140bp.
At the shorter end of the curve, CNPC's 2.75% 2019 bonds are bid at 115bp over five-year Treasuries. Hong Kong and China Gas Company 6.25% 2018 bond is currently bid at 80bp over.
However, investors will also be looking one notch up the ratings spectrum to CNOOC, Sinopec and State Grid Corp, which have Aa3/AA- ratings. CNOOC's 4.25% 2024 bond is currently bid at 150bp over Treasuries, while State Grid Corp's 4.125% 2024 bond is at 130bp over and its 2.75% 2019 bond at 95bp over.
Debt and financial profile
At the end of its March financial year, Alibaba had total liabilities of Rmb70.73 billion ($11.55 billion), with long-term debt of Rmb30.7 billion ($5.07 billion) and short-term debt of Rmb10.36 billion ($1.69 billion).
This equates to a net debt to equity ratio of minus 21.9% and interest coverage ratio of 45.6 times. Net debt to Ebitda comes in at minus 0.34 times.
Its main facility is a $8 billion three-tranche syndicated loan completed in April. This comprises a $1.5 billion three-year revolver and $2.5 billion three-year term loan, both of which were priced at 225bp over Libor, plus a $4 billion five-year term loan, which was priced at 275bp over.
Funds were primarily used to re-pay the group's 2013 drawdowns, which consisted of $2 billion through a three-year revolver and $2 billion through a four year. Alibaba's preliminary prospectus reveals that this was fully drawn-down as of September.
In its most recent second quarter results, Alibaba demonstrated strong earnings growth, which has helped to keep its share price up in the stratosphere. Sales were up 6.7% quarter-on-quarter to Rmb16.8 billion ($2.74 billion), or 53.7% on a year-on-year basis.
Likewise, adjusted net income was up 18.5% compared to the same time last year at Rmb6.8 billion ($1.1 billion). Analysts highlighted that mobile GMV (gross merchandise volume) is also living up to its promise and now accounts for 35.8% of the total compared to 32.8% the quarter before.
The rest of the Asian pipeline
A raft of Asian companies are priming bonds ready for next week in what is shaping up to be a busy few days. All will be hoping they do not get completely overshadowed by Alibaba.
First up could be a debut dollar-denominated offering by Indonesian property company PT Duta Anggada Realty. The B1/B-rated entity wrapped up roadshows for a Reg S five-year deal with a three-year call option on Wednesday.
JPMorgan has sole books for the transaction, which should benefit from recent spread compression among Indonesian property names such as PT Alam Sutera and Pakuwon Jati.
Two bonds from the Asian energy sector are also expected next week. SK E&S, Korea's largest city gas distributor and leading independent power producer, is mid-way through roadshows, which will continue in the US early next week.
The perpetual non-call five transaction is expected to receive a Baa3/BBB- rating, two notches below its senior level. Bookrunners are Barclays, Citigroup, Goldman Sachs, JP Morgan, and UBS.
From India, NTPC is proposing to launch a Reg S dollar-denominated bond. The country's largest power generator has mandated Barclays, Citigroup, HSBC and SBI for the deal, which is expected to receive a BBB-/BBB- rating.
Roadshows begin in Singapore on Monday, followed by Hong Kong on Tuesday.
This article has been updated since first publication.
