Alibaba Group released a pricing announcement today regarding the issuance of convertible priority notes, stating that it will issue $4.5 billion convertible priority notes due in 2031 with an interest rate of 0.5%.
The terms indicate that these bills will have a conversion premium of 30% to 35%. Citigroup, JPMorgan Chase, Morgan Stanley, Barclays, and HSBC are assisting in arranging this transaction.
According to its announcement, Alibaba is expected to grant initial buyers additional options, with a maximum principal amount of up to $500 million, and the relevant options can be exercised within 13 days from the date of issuance of the notes. This means that this transaction can raise up to $5 billion in funds.
It is reported that the net proceeds raised will mainly be used for three purposes: repurchasing approximately 14.8 million American depositary shares at a price of $80.80 per share (the final transaction price per American depositary share on May 23); Provide funds for further repurchases under the share repurchase plan; Provide funding of $573.75 million to establish a price limit bullish exchange.
As for the repurchase, Alibaba is expected to repurchase the expected initial hedging value of the entire transaction, which is expected to facilitate investors interested in hedging the notes for initial hedging. The relevant price is the closing price of the US stock on May 23, 2024.
"The synchronous repurchase and future repurchase under the share repurchase plan will be paid with funds raised from the issuance of notes or other cash, and overall, it is expected to offset the potential dilution of shares when the notes are converted." Alibaba stated in the announcement.
It is worth mentioning that during the Alibaba Q1 2024 performance conference call, Alibaba's management stated that there is currently approximately $29 billion on Alibaba's books available for future share repurchases.
As management, when considering future shareholder return plans and arrangements, we will definitely pay attention to the company's future cash flow situation. At the same time, we also need to consider the investment needs in core businesses, as well as in new areas such as AI Investment in AIDC cross-border business. On this basis, if we have additional resources, we are willing to continue with shareholder returns. When conducting shareholder returns, we consider stock repurchases and dividend payouts as two separate ways of shareholder returns, rather than considering them separately The management of Alibaba mentioned above will discuss its performance in the first quarter of 2024.
Additionally, it is worth noting that& quot; Limit price bullish trading; quot; This clause has caught the attention of the market, and according to the announcement, the upper limit price of this transaction is expected to be 100% higher than the final transaction price of the American Depositary Shares on the day of the bill issuance pricing. In other words, Alibaba will purchase approximately 100% call options on its own stocks.
Huang Lichong, President of Huisheng International Capital, told Caixin that convertible bonds generally have lower interest rates and are actually using leverage to boost stocks.
In Huang Lichong's view, overall, the current situation of Chinese concept stocks in the US market is not good, so Alibaba must find ways to reduce the circulating stocks in the US market.
Some market analysts also pointed out that Alibaba has sufficient cash and issuing convertible bonds is a clever way to develop itself. They also pointed out that global leading technology companies such as Apple and Amazon are doing this: as of the end of 2023, Alibaba's overall asset liability ratio was 37.3%, far lower than Amazon's 61.8% and Apple's 79% during the same period. "This is beneficial for shareholders and also means that Alibaba is optimistic about its own development prospects and full of confidence in value enhancement."
As of press release, Alibaba's US stock market closed at $80.80, with a total market value of $196.6 billion.