Alibaba returned to the international capital markets with a vengeance on Friday morning, raising a mammoth $8 billion six-part bond, which received $55 billion in orders globally.
The internet company — the biggest in Asia — sold $1 billion three-, $2.25 billion five- and $1.5 billion seven-year bonds, as well as $2.25 billion 10- and $700 million 20-year fixed-rate notes.
Alibaba also raised a $300 million three-year floating rate note but dropped the five-year tranche as investors preferred the level of absolute rates, according to a source familiar with the matter.
Due to overwhelming investor demand, the three-, five- and seven-year tranches ended up tightening by 10bp to 20bp to price at Treasuries plus 70bp, 95bp and 115bp respectively. The 10- and 20-year offerings priced 22bp to 27bp tighter at Treasuries plus 128bp and 148bp respectively.
Meanwhile, the three-year floating rate note priced at three-month Libor plus 52bp.
"This is the biggest trade out of Asia ever," said the source. "[Alibaba is] positioned as a top global technology company and [priced] well inside any Chinese comparables, including Chinese state-owned enterprises."
The transaction comes fresh off the China-based company’s roadshow, which ended on Wednesday in New York. Sources close to the deal said Alibaba’s inaugural offering received a $20 billion order book solely from long-only US funds at that time.
The deal also comes just two months after Alibaba completed a record $25 billion public stock sale. The firm’s share price has soared since it listed in mid-September at $68 per share. At Tuesday’s close in Asia, the stock was trading at $110.81, up 63%.
The $8 billion sale surpassed the $6.5 billion issue last month by Bank of China of Additional tier-1 securities, Asia's biggest bond in the US currency at that time, taking Asia-ex Japan’s dollar-, euro- and yen-denominated bond volumes to a record-breaking $204.1 billion year-to-date, according to Dealogic data. This is 43% higher than last year’s total during the same period.
Comparables
Alibaba's deal, rated A+ by Standard & Poor’s and Fitch, and A1 by Moody’s, priced closer to US blue-chip names such as Oracle, Cisco and Amazon rather than lower-rated Chinese internet companies like Tencent and Baidu.
Cisco and Oracle's outstanding 2024 bonds, for example, were trading at a G-spread of 105bp and 107bp respectively prior to announcement of the notes, according to sources familiar with the matter. Amazon's existing 2022 bonds were trading at 127bp.
As for the Chinese tech firms, Baidu’s existing notes expiring in 2022 were trading at a G-spread of 154bp, while Tencent’s outstanding paper maturing in 2019 were trading at 149bp.
But Alibaba managed to price through their existing paper, not least because it has two notch higher ratings from both Moody’s and S&P.
As for Chinese state-owned enterprises, State Grid's existing notes maturing in 2024 were trading at a G-spread of 135bp, while CNOOC's 2024s at 163bp. They are both rated Aa3/AA-, a notch higher than Alibaba's.
"There was no new issue premium or size adjustment," said a source close to the deal.
The ratings reflect dominant market position in e-commerce in China and the company's minimal financial leverage.
"Alibaba's highly recognisable brand name and very strong research and development capabilities and e-commerce infrastructure are likely to support its strong growth over the next 24 months," said Tony Tang, credit analyst at Standard & Poor's.
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.
And while it is still too early to assess the impact of Alibaba's recent acquisitions on its operating performance, S&P believes the effect on its financial leverage is minimal.
“We expect Alibaba to continue to make acquisitions to strengthen its suite of products and services and to enhance its e-commerce ecosystem, but they will not materially undermine its profitability,” said Tang.
Use of proceeds
Given that Alibaba has $11 billion in loans and credit lines, it will use proceeds from the bond sale to push its yield curve out and refinance some credit agreements, it said in a November 13 statement.
Refinancing its $8 billion loan obtained in May 2013 with the bond would allow Alibaba to amend covenants on another $3 billion revolving facility to match the new notes, according to a preliminary offering memorandum.
The covenants on the $3 billion borrowing substantially match those on $8 billion facility, except that, under the former, Alibaba isn't required to maintain a minimum level of cash on reserve, according to the sales document.
Alibaba is expected to continue tapping capital markets to fund its fast-growing business. The company has made a slew of acquisitions this year, ranging from stakes in Singapore's postal service SingPost to Guangzhou Evergrande, one of China's top football clubs.
The active bookrunners on the deal — the same banks that executed its $8 billion syndicated loan — were Citi, Deutsche Bank, JP Morgan and Morgan Stanley, while the passive bookrunners were Credit Suisse and Goldman Sachs. Morgan Stanley was the lead left and sole ratings advisor of the transaction.
BNP Paribas, DBS, HSBC, ING and Mizuho were the co-managers of Alibaba’s transaction.
