Alibaba goes long, still can't match Amazon

The Chinese tech giant rides bullish sentiment amid strong sales growth and a soaring share price. But regulatory worries means it can't quite match the terms its US rival enjoys.

Jack Ma's internet behemoth Alibaba barreled back to the international bond market for the first time in three years on Wednesday, setting a new template for other issuers to extend their maturity profile.

With maturities ranging from 5.5 years to 40 years, the $7 billion SEC-registered deal gave debt investors a chance to tap the kind of exuberance around Alibaba that has propelled its US-listed shares to double in value in the last 12 months, though gains have been pared back in recent weeks.

Not surprisingly given the strength of the Alibaba name and the hype surrounding its "Singles Day" shopping festival earlier in November, the company garnered strong interest from foreign investors, hitting $46 billion of demand at its peak, according to bankers familiar with the deal.

Still, despite strong credit ratings, the Chinese company was unable to match the terms of its US counterparts; its average funding cost is about 40bp above the outstanding curves of Amazon, according to one credit analyst.

While this meant opportunity for US portfolio managers eager to squeeze extra yield from a top-rated credit, it also reflects a key concern about Alibaba and other Chinese giants: the risks of navigating China's Byzantine regulatory landscape.

The Chinese central bank supervises online payments, while the banking regulator oversees internet lending, trust and consumer finance. The securities regulator is the watchdog for equity crowdfunding and online fund sales. Each of them oversees part of Alibaba's vast empire.

“China’s internet censorship regime has groomed some of the largest internet companies in the world, but they can be impacted by a change in policy,” a Singapore-based fund manager with a European company told FinanceAsia.

The investor cited a recent crackdown on online consumer lending, which prompted a sell-off in some US-listed Chinese technology firms, as an example of how regulators can suddenly crimp a business's growth.

Ratings agencies, too, have taken note. 

“Adverse developments in the regulatory framework that could affect Alibaba's operations or business model would be negative for the ratings,” Lina Choi, a credit officer at Moody's cautioned to potential investors in the unsecured notes. 

Still, at $7 billion, the new Alibaba bond is the largest dollar debt sold by an Asian corporate this year and the second largest from the region, according to Dealogic. Alibaba sold an $8 billion bond in 2014, the largest Asian dollar corporate bond on record.

Aggressive terms

Alibaba emphasised its strong cash position and future growth, as well as its leadership position in big data and cloud computing, providing enough comfort to investors to hold the bonds for a long period of time.

"For the long-dated 30-year and 40-year bonds, pension funds and insurance companies in the US are the major buyers,” a syndicate banker told FinanceAsia. “Corporate treasurers in the US showed their interest in the shorter-dated tranches (5.5-year and 10-year) because of their sensitivity to interest rate hikes”.

“US investors are the major buyers of the deal, followed by European and Asia investors,” the banker added.

All the tranches were narrowed by 17bp to 27bp from their initial guidance area, a term sheet shows.

At the end of the marketing, Alibaba issued a $700 million 2.8% 2023 note, a $2.55 billion 3.4% 2027 note, a $1 billion 4% 2037 note, a $1.75 billion 4.2% 2047 note.

The company also sold a $1 billion 40-year note at 4.4%, which is the longest-dated bond issued by an Asian corporate issuer.

“The rare 40-year tranche helped the company expand its maturity profile and set a new template for future issuers,” said another syndicate banker.

Apart from the new 10-year bullet, most tranches tightened significantly on Thursday morning, narrowing by 10bp to 14bp across the curves. The 2027 bond tightened by 2bp, according to market data.

The company plans to use the new proceeds for general corporate purposes.

Bookrunners for the new deal were Morgan Stanley, Citi, Credit Suisse, Goldman Sachs and JP Morgan.

Singular vision

The timing reflected the importance of November shopping to Chinese retailers, much like their US counterparts.

“Alibaba rode on its strong sale growth on its Singles Day shopping festival earlier this month, drumming up significant interest for its latest bond offering,” said a person familiar with the deal.

The Hangzhou-based company began in 2009 to offer special deals on November 11, dubbed "Double 11" or "Singles Day" in China. Started, supposedly, as a way to cheer up lonely singletons, it has since accelerated to become China's answer to the US "Black Friday" phenomenon.

This year, a star-studded gala that attracted actress Nicole Kidman, American rapper Pharrell Williams and sumo wrestler Dagvadorj Dolgorsurengiin to Shanghai helped propel sales across its platforms to $25.4 billion, according to the company's figures.

“The new retail is the merger of entertainment and consumption,” as vice-chairman Joe Tsai said at the time.

In a conference call with investors, the company said its strategy outside of China would focus on bringing imports from the US and Europe into the world’s second-largest economy, while expanding its e-commerce segment in Southeast Asia.

The company aims to be bigger than the world’s fifth-largest economy and serve 2 billion customers by 2036. It forecasts total group revenues will rise about 50% this year.

¬ Haymarket Media Limited. All rights reserved.
Share our publication on social media
Share our publication on social media