Alibaba Group Holding Ltd (NYSE:BABA) newly minted bonds were in focus after the company’s $7 billion multi-tranche sale witnessed a blow-out response and established a precedent for rival firms to follow. Robust demand for the sale allowed company to notably tighten the prices it offered. Bonds order totaled around $40 billion.
The five-tranche agreement comprised bonds maturing at levels from 5.5 years to 40 years. This range enables firm to advance a yield curve which competitors could use to decide the attractiveness of maturities when releasing their own debt. CreditSights analyst Sandra Chow expressed that the tech sector for bonds is not big in Asia and this establishes an example for others to follow.
She said Baidu Inc, Tencent Holdings Ltd and Alibaba are trailblazers in Asia, where shareholders were generally less acquainted with tech industry bonds compared to the U.S. Alibaba’s latest sale marks its second, whereas Tencent and Baidu are seasoned issuers. It does assist build up the industry and the range of maturities will result in improved trading liquidity across the curve.
The tranches for the 40-, 30-, 20-, 10- and 5.5-year maturities were priced at 158, 138, 118, 108 and 73 basis points over U.S. Treasuries. The deal pricing was far tighter than preliminary indications. Alaa Bushehri of BNP Paribas Asset Management expressed that Alibaba is a fundamentally robust firm with a leading market position and impressive positive cash flows.
Alibaba holds net cash of 68.1 billion yuan, indicating its total cash surpasses its total debt. Analysts stated however that it was prudent of the firm to borrow. Chow added that raising debt when the company can, marks as a smart move. The firm could use the funds for more acquisitions and investments in future. They have discussed about FMCG, logistics or food, so they could witness purchases there.