Alibaba (BABA) Issues Bonds worth $8B to Repay Bank Loan
Shortly after its IPO, the Chinese e-Commerce giant Alibaba (BABA) announced a public offering of bonds aggregating $8 billion. Reportedly, these bonds have been issued in six tranches, with a coupon rate of 3.6% and 4.5% for 10-year and 20-year notes, respectively.
The company, which raised a record $25 billion in its September IPO, stated that the transaction proceeds will be used to repay an $8 billion bank loan.
The bonds have been rated 'A+' by Standard & Poor’s and 'A1' by Moody’s Investors Service. The debt ratings are ahead of technology giants like eBay (EBAY), Baidu (BIDU) and Amazon.com (AMZN) and on par with bellwethers like Oracle and Intel, which strengthens Alibaba’s creditability.
Following the news, Alibaba rose nearly 1% and is currently trading at about $110.73 per share. Morgan Stanley, Citigroup Inc., Deutsche Bank AG, J.P. Morgan Chase & Co. and seven others acted as joint book-running managers for the offering.
Record Deal
The $8 billion sale surpassed the $6.5 billion issue last month from the Bank of China Ltd. making it the biggest dollar offering by an Asian Company. The bond sale will readjust the company’s capital structure and enable it to take advantage of the current low-cost borrowing environment.
This bond issuance is a good sign as the stock will continue to rise after the record sales during the Singles’ Day shopping event. The company reported a sale of $9 billion on Nov 11, which not only outshone its own expectation of $8.2 billion or 50 billion yuan but also IDC’s estimate of $8.65 billion. In fact, Alibaba’s Singles' Day sales figures were higher than the Black Friday and Cyber Monday 2013 sales figures taken together.
To Conclude
Alibaba is one of the leading players in the extremely fast growing e-Commerce market and its strength lies in its huge scale of offerings and dominance in the mobile search market. At the end of the second quarter, Alibaba had RMB109.9 billion in cash and RMB53.3 billion as total bank borrowings on its balance sheet.
We believe Alibaba’s strong balance sheet will help it to capitalize on investment opportunities and strategic acquisitions, thereby improving growth visibility. Going forward, we believe that the company is seeking to expand its horizons by foraying into other markets.
However, Alibaba reported a disappointing second-quarter fiscal 2015 (ended Sep 30, 2014) earnings, missing the Zacks Consensus Estimate by 32.43% due to increased investments in mobile, marketing and other new ventures.
Therefore, Alibaba currently carries a Zacks Rank #4 (Sell).
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