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Chinese e-commerce giant Alibaba will sell its first-ever bond on Thursday, a jumbo trade expected to be around US$8 billion (RM26.88 billion) in size that comes just two months after the company's record IPO.
The company last week announced plans to launch an offering of senior unsecured notes, and said it intends to use the net proceeds from its debut offering primarily to refinance its existing credit facilities. Alibaba is said to have $11 billion in loans and credit lines. The offering is being run by Morgan Stanley (MS), Citigroup Inc.(C), Deutsche Bank AG (DB) and JPMorgan Chase & Co. (JPM). Though the company has not revealed that size and other terms of the offering, reports peg the offering amount at about $8 billion. The offering of this size is billed to be one of the largest corporate-debt offerings in 2014. Few investors expect to see any commotion tied to the bond sale. New bonds are unlikely to soar because unlike stocks, which can appreciate infinitely, they are predictably repaid at maturity at 100 cents on the dollar.
The offering will also be the largest by a Chinese company in the U.S. in 2014, topping a $6.5 billion offering of additional Tier 1 securities by Bank of China Ltd. in October.It is looking to sell up to seven tranches, including five fixed-rate bonds ranging from three to 20-year maturities and two floating-rate notes with three and five-year maturities, which bankers and investors expect to be the most sought after of the year. Following its historic $25 billion offering in the stock market, Alibaba is now set to test the waters in the bond investors market. The company's stock has surged 60 percent since the IPO and it currently has a market capitalization of $270 billion. Some of the recent successful multi-billion dollar bond offerings by technology companies were from Apple, Inc. (AAPL), Oracle Corp. (ORCL), and Cisco Systems, Inc. (CSCO). Chinese companies such as Hong-Kong listed Tencent Holdings Ltd. and Baidu, Inc. have also been successful in the U.S. bond market.
Alibaba’s dominant position in the Chinese online-retail market and strong financials, with ratings as high as single-A-plus from some credit-rating firms, likely will ensure a positive reception, investors said. Alibaba has been sounding out investors this week in Asia, Europe and the US and is believed to have a huge order book already in place before officially starting the marketing phase in Asia overnight. Two market sources said initial indications of interest were at US$10 billion. Alibaba's high Single A ratings will help as the company pitches itself as a comparable to blue-chip names like Oracle, Amazon and Cisco, rather than its lower-rated Chinese internet peers Tencent Holdings and Baidu. Oracle's 2.25% October 2019 bonds are trading at a G-spread of around 66bp, some 44bp inside the IPTs on Alibaba's five-year tranche. That gap will likely shrink as orders pour in during Asian hours, before Europe weighs in ahead of eventual pricing on Thursday afternoon in the US.
At the same time, the company is solidly profitable, giving it an edge on many technology and retail firms that have narrow margins and unsteady profitability. Some U.S. rivals have struggled recently, likely boosting investors’ interest in Alibaba’s debt. Ebay Inc. bond prices fell after the online-auction firm said it would spin off its PayPal unit, creating uncertainty for debt investors. Last month, Amazon.com Inc. reported its largest quarterly loss in 14 years.
Alibaba is “one that looks like it could be a growing business with a stable story,” said Scott Kimball, senior portfolio manager at TCH LLC, which oversees about $10.5 billion and is a unit of BMO Global Asset Management. Revenue for the quarter rose 54% from a year earlier to $2.74 billion. Earnings fell 39% from a year ago to $494 million, largely because of stock awards to employees and executives.
The company last week announced plans to launch an offering of senior unsecured notes, and said it intends to use the net proceeds from its debut offering primarily to refinance its existing credit facilities. Alibaba is said to have $11 billion in loans and credit lines. The offering is being run by Morgan Stanley (MS), Citigroup Inc.(C), Deutsche Bank AG (DB) and JPMorgan Chase & Co. (JPM). Though the company has not revealed that size and other terms of the offering, reports peg the offering amount at about $8 billion. The offering of this size is billed to be one of the largest corporate-debt offerings in 2014. Few investors expect to see any commotion tied to the bond sale. New bonds are unlikely to soar because unlike stocks, which can appreciate infinitely, they are predictably repaid at maturity at 100 cents on the dollar.
The offering will also be the largest by a Chinese company in the U.S. in 2014, topping a $6.5 billion offering of additional Tier 1 securities by Bank of China Ltd. in October.It is looking to sell up to seven tranches, including five fixed-rate bonds ranging from three to 20-year maturities and two floating-rate notes with three and five-year maturities, which bankers and investors expect to be the most sought after of the year. Following its historic $25 billion offering in the stock market, Alibaba is now set to test the waters in the bond investors market. The company's stock has surged 60 percent since the IPO and it currently has a market capitalization of $270 billion. Some of the recent successful multi-billion dollar bond offerings by technology companies were from Apple, Inc. (AAPL), Oracle Corp. (ORCL), and Cisco Systems, Inc. (CSCO). Chinese companies such as Hong-Kong listed Tencent Holdings Ltd. and Baidu, Inc. have also been successful in the U.S. bond market.
Alibaba’s dominant position in the Chinese online-retail market and strong financials, with ratings as high as single-A-plus from some credit-rating firms, likely will ensure a positive reception, investors said. Alibaba has been sounding out investors this week in Asia, Europe and the US and is believed to have a huge order book already in place before officially starting the marketing phase in Asia overnight. Two market sources said initial indications of interest were at US$10 billion. Alibaba's high Single A ratings will help as the company pitches itself as a comparable to blue-chip names like Oracle, Amazon and Cisco, rather than its lower-rated Chinese internet peers Tencent Holdings and Baidu. Oracle's 2.25% October 2019 bonds are trading at a G-spread of around 66bp, some 44bp inside the IPTs on Alibaba's five-year tranche. That gap will likely shrink as orders pour in during Asian hours, before Europe weighs in ahead of eventual pricing on Thursday afternoon in the US.
At the same time, the company is solidly profitable, giving it an edge on many technology and retail firms that have narrow margins and unsteady profitability. Some U.S. rivals have struggled recently, likely boosting investors’ interest in Alibaba’s debt. Ebay Inc. bond prices fell after the online-auction firm said it would spin off its PayPal unit, creating uncertainty for debt investors. Last month, Amazon.com Inc. reported its largest quarterly loss in 14 years.
Alibaba is “one that looks like it could be a growing business with a stable story,” said Scott Kimball, senior portfolio manager at TCH LLC, which oversees about $10.5 billion and is a unit of BMO Global Asset Management. Revenue for the quarter rose 54% from a year earlier to $2.74 billion. Earnings fell 39% from a year ago to $494 million, largely because of stock awards to employees and executives.
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