Alibaba’s $4.5 billion convertible bond sale is oversubscribed as the tech giant builds up a war chest to fund share buybacks

Alibaba Group Holding is selling up to $5 billion in convertible bonds to fund share repurchases, as the Chinese tech giant’s leadership has identified e-commerce and cloud computing as its core businesses in a push “toward strategic transparency.”

The Hangzhou-based company that owns the South China Morning Post said it expects to raise close to $4.5 billion in initial sales, while giving buyers the option to buy up to $500 million in additional notes, according to filings in the bank. stock exchanges in Hong Kong and New York on Friday and Thursday.

The offering, the largest-ever convertible bond deal in Asia and the largest globally since 2008, was met with positive market response, according to people familiar with the matter who asked not to be identified because the information is private.

According to one source, Alibaba’s latest move shows management’s confidence in the company’s fundamentals. The company decided to issue convertible notes instead of dollar bonds because they involve lower financing costs and the conversion will only trigger when the price of Alibaba’s American Depository Shares (ADS) reaches $161.6, the person said.

An advertisement for Alibaba’s Tmall e-commerce platform at a subway station in Shanghai. Photo: Bloomberg

In the first quarter, the company announced it would spend $4.8 billion to buy 524 million shares of common stock, equivalent to 65 million ADSs, marking its most aggressive share repurchase since 2021. In total, it repurchased $12.5 billion worth of stock the year ended in March.

On Thursday, Alibaba Chairman Joe Tsai and Chief Executive Eddie Wu Yongming sent their first letter to shareholders since taking over from Daniel Zhang Yong last September, saying the company was returning to a startup mindset.

“Over the past 25 years, Alibaba has grown steadily but has acquired the characteristics of a ‘large company,'” the letter reads. “Over the next 10 years, we re-imagine ourselves as a start-up characterized by entrepreneurship, innovation and our mission to ‘make it easier to do business anywhere.’

Tsai and Wu singled out e-commerce and cloud computing as Alibaba’s two main businesses. This comes after the company announced it in March last year extensive restructuring which would have spun off six independently managed entities from the company, but later canceled plans to conduct separate initial public offerings for Cainiao intelligent logistics operation AND Alibaba Cloud.

Leaders said Alibaba’s domestic and international e-commerce units – Taobao and Tmall Group and International Digital Commerce Group – are now at the heart of the group’s core e-commerce business, while other divisions such as Cainiao and e-commerce company Ele on-demand deliveries. I am expected to “create synergies that will make our e-commerce businesses more valuable.”

Alibaba also aims to be “the leading provider of public cloud infrastructure and platform technologies in China.”

The leaders also reiterated two strategic directions first announced by Wu after taking office: “user first,” which prioritizes user experience in business strategy and product design to increase business retention and repeat purchases, and “focus on artificial intelligence.” .

“Each of our companies has a vast number of use cases, all of which can leverage AI applications to unlock powerful value, and the implementation of AI will increase demand for computing and drive the development of Alibaba Cloud,” Tsai and Wu wrote. Alibaba aims to be “the leading provider of public cloud infrastructure and platform technologies in China,” they said.

The company will continue to invest with two goals: to accelerate growth in its core business and to maintain its leadership in core technologies and innovations, including artificial intelligence.

Leaders said the company is making “difficult decisions” with a long-term perspective.

“We think in 10-year cycles because the rhythm of development of technology companies usually includes phases of investment, growth, harvest, profit and invariable decline,” they wrote.