Alibaba Group Holding Ltd. (BABA) is planning to raise as much as $8 billion as soon as next week in its first U.S. bond sale, just two months after the Chinese company completed the biggest public stock offering ever, people with knowledge of the matter said.
Asia’s largest Internet company will use the proceeds to refinance its credit facilities, according to a statement yesterday. The bonds will be rated A+, or the fifth highest investment-grade, by Standard & Poor’s and an equivalent A1 by Moody’s Investors Service.
The debentures would be on top of the $25 billion Alibaba collected in a September initial public offering, which was the biggest share sale on record. The Hangzhou, China-based e-commerce group, with a market capitalization of almost $300 billion, has $11 billion in loans and credit lines, according to data compiled by Bloomberg.
“Given that they just had their IPO, they don’t necessarily need to come to market,” Nathan Barnard, a fixed-income analyst at Portland, Oregon-based Leader Capital Corp., said in a telephone interview. “They’re pretty flush with capital. It’s another example of companies being opportunistic and trying to take advantage of low rates while they can.”
Amazon, EBay
Should Alibaba raise $8 billion, the bond sale would be the largest ever denominated in U.S. dollars in Asia, according to data compiled by Bloomberg, surpassing Bank of China Ltd., which raised $6.5 billion last month selling additional Tier 1 securities.
The extra yield, or spread, investors demand to hold company bonds worldwide instead of government debt fell to 1.05 percent on June 20, the lowest in seven years, according to the Bank of America Merrill Lynch Global Corporate Index. Premiums have since risen to 1.19 percent.
The average cost of borrowing for investment-grade e-commerce companies is 2.7 percent, based on the yields of bonds sold by Amazon.com Inc. and EBay Inc., according to data compiled by Bloomberg.
Morgan Stanley, Citigroup Inc., Deutsche Bank AG and JPMorgan Chase & Co. will market the debt to investors starting next week, according to a person with knowledge of the matter, who asked not to be identified, citing lack of authorization to speak publicly.
Hong Kong, Singapore
A five-part bond sale is being considered, with four portions of fixed-rate notes and one tranche of floating-rate debt, according to a preliminary offering memorandum seen by Bloomberg. Meetings will start in Hong Kong on Nov. 17, continue in Singapore the following day and finish in the U.S. Nov. 19, people familiar with the matter said today.
“The ratings reflect Alibaba’s dominant position in China’s online shopping market,” according to Fitch Ratings Ltd., which also ranks the company at A+. “The ratings also benefit from Alibaba’s robust profitability and strong cash generation.”
Alibaba will be able to maintain a conservative capital structure with a strong net cash position in the next few years, while it keeps its ratio of debt to cash flow below 1.5 times, Fitch said.
A $4 billion term loan that the company obtained last year pays 2.75 percentage points more than the London interbank offered rate. Libor, the rate at which banks say they can borrow from each other, is at about 0.23 percentage point.
Refinancing its $8 billion loan with the bond proceeds would allow Alibaba to amend covenants on another $3 billion revolving facility to match the new notes, according to a preliminary offering memorandum seen by Bloomberg.
Hangzhou Beginnings
The covenants on the $3 billion borrowing substantially match those on $8 billion facility, except that under the $3 billion revolver, Alibaba isn’t required to maintain a minimum level of cash on reserve. Under the terms of the $8 billion loan, Alibaba must maintain an offshore group leverage ratio of a maximum of 3:1 and an interest coverage ratio of at least 4:1, according to the sales document.
Alibaba provides marketplaces for buyers and sellers, as well as services that help them conduct their businesses. Its stock has gained 69 percent since the September sale, advancing to $114.84 in New York yesterday.
The company is led by billionaire chairman Jack Ma, who founded it from his Hangzhou apartment in 1999 with $60,000. Its main marketplaces include Taobao, which links individual buyers and sellers, and Tmall.com, which connects retailers and consumers. Earlier this month, during the Chinese company’s annual Singles’ Day promotion, Alibaba reaped a record 57.1 billion yuan ($9.3 billion) in online sales.
“The company is leveraging the momentum from its equity offering, which increases the potential investor demand in a large bond offering,” Jody Lurie, a corporate-credit analyst at Janney Montgomery Scott LLC in Philadelphia, said in a telephone interview.
Bloomberg
To contact the reporters on this story: Sridhar Natarajan in New York at snatarajan15@bloomberg.net; Neha D’silva in Hong Kong at ndsilva1@bloomberg.net; Zijing Wu in Hong Kong at zwu17@bloomberg.net
To contact the editors responsible for this story: Shannon D. Harrington at sharrington6@bloomberg.net; Michael Tighe at mtighe4@bloomberg.net Faris Khan, Richard Bravo
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