Alibaba Group Announces Completion of US$5 Billion Offering of Convertible Senior Notes

Rhea-AI Summary

Alibaba Group Holding (NYSE: BABA) announced the completion of a US$5 billion offering of 0.50% Convertible Senior Notes due 2031.

This includes the full exercise of an additional US$500 million by initial purchasers. The company entered into capped call transactions to reduce potential share dilution, effectively increasing the conversion premium to 100% over the last reported sale price of US$80.80 per ADS as of May 23, 2024.

The initial conversion rate for the Notes is 9.5202 ADSs per US$1,000 principal amount, equivalent to a conversion price of approximately US$105.04 per ADS, a 30% premium over the last reported sale price.

Positive

• Completed a successful US$5 billion offering of Convertible Senior Notes.
• Full exercise of an additional US$500 million by initial purchasers.
• Entered into capped call transactions to reduce potential share dilution.
• Increased conversion premium to 100% over last reported sale price of US$80.80 per ADS.
• Initial conversion rate set at 9.5202 ADSs per US$1,000 principal amount, representing a 30% premium.

Negative

• Notes are not registered under the Securities Act or any state securities laws.
• Convertible Senior Notes could lead to potential dilution if converted.

Insights

Financial Analyst

Alibaba's completion of a $5 billion offering of Convertible Senior Notes is a significant event for the company, reflecting strong market confidence. Convertible notes are a hybrid debt-equity instrument that can be converted into a predefined number of shares. This form of financing is attractive because it offers the flexibility of debt and the potential upside of equity.

The 0.50% interest rate on these notes is notably low, indicating investors' high trust in Alibaba's creditworthiness. The notes' initial conversion price of $105.04 per ADS, which represents a 30% premium over the last reported price, shows that investors are optimistic about Alibaba’s future stock performance. However, the company has also entered into capped call transactions, which are options to mitigate the dilution effect when the notes are converted to equity. This essentially increases the conversion premium up to 100%, reducing potential dilution and benefiting existing shareholders.

In the short term, this move will provide Alibaba with $5 billion in capital, bolstering its liquidity and allowing for potential investment in growth initiatives or strategic acquisitions. Over the long term, if the company's stock price appreciates beyond the conversion price, it could lead to equity dilution. However, this would also suggest strong company performance, potentially offsetting the dilution with enhanced shareholder value.

Retail investors should note the complex nature of convertible notes and capped call transactions. Understanding these mechanisms is important for evaluating potential impacts on stock price and shareholder value.

Market Research Analyst

From a market perspective, Alibaba's successful issuance of convertible senior notes amid current global economic uncertainties is a testament to its market positioning and investor confidence. The timing of this issuance is strategic. Recent macroeconomic trends show increasing inflation and interest rates, making the low 0.50% coupon rate particularly attractive and indicative of high market confidence in Alibaba's financial health.

The capped call transactions are a sophisticated financial maneuver designed to minimize shareholder dilution. By effectively increasing the conversion premium through these transactions, Alibaba is protecting its current shareholders from immediate dilution while still leveraging the raised capital for growth and expansion. For retail investors, it’s essential to understand that these strategies are intended to balance immediate capital needs with long-term shareholder value preservation.

This issuance also suggests that Alibaba is gearing up for significant strategic moves, possibly including technology investments or market expansion. Retail investors should keep an eye on Alibaba’s subsequent financial disclosures and strategic announcements, as these will provide further insight into how the newly raised capital is being deployed.

Legal Expert

The legal structure of Alibaba’s offering, using Rule 144A and Regulation S, is important for understanding the scope and implications of this financing. Rule 144A allows the sale of securities without the need for SEC registration to qualified institutional buyers (QIBs), while Regulation S facilitates the sale to non-U.S. investors outside the United States. This dual approach maximizes the potential investor base and liquidity, making the offering more attractive and efficient.

However, the lack of registration under the Securities Act means these notes and the ADSs deliverable upon conversion won't be subject to the same disclosure requirements as fully registered securities. This could introduce additional risk factors related to transparency and investor protection. Retail investors should be aware of these regulatory nuances as they assess the potential risks and rewards associated with Alibaba's convertible notes.

Additionally, the terms involving adjustments to the conversion rate upon certain corporate events or notices of redemption add complexity. These provisions protect noteholders, ensuring fair value conversion in dynamic circumstances, but they also add layers of legal and financial intricacies that retail investors should consider.

HANGZHOU, China--(BUSINESS WIRE)-- Alibaba Group Holding Limited (NYSE: BABA and HKEX: 9988 (HKD Counter) and 89988 (RMB Counter), “Alibaba,” “Alibaba Group” or the “Company”) today announced the completion of its private offering of US$5 billion aggregate principal amount of 0.50% Convertible Senior Notes due 2031 (the “Notes”), which amount includes the exercise in full by the initial purchasers of their option to purchase an additional US$500 million aggregate principal amount of the Notes (the “Option Exercise”). In connection with the Option Exercise, the Company also entered into additional capped call transactions with one or more of the initial purchasers and/or their affiliates and/or other financial institutions, using US$63.75 million of the net proceeds from the sale of the additional Notes. The capped call transactions are generally expected to reduce potential dilution to the ADSs and the ordinary shares of the Company upon conversion of the Notes by effectively increasing the conversion premium from approximately 30% to 100% over the last reported sale price of US$80.80 per ADS on the New York Stock Exchange on May 23, 2024. The Notes have been offered to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”) and to certain non-U.S. persons in offshore transaction in reliance on Regulation S under the Securities Act.

The initial conversion rate for the Notes is 9.5202 ADSs per US$1,000 principal amount of the Notes, which is equivalent to an initial conversion price of approximately US$105.04 per ADS. The initial conversion price represents a premium of approximately 30% over the last reported sale price of US$80.80 per ADS on the NYSE on May 23, 2024. The conversion rate is subject to adjustment in some events, but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date or following our delivery of a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its Notes in connection with such a corporate event or such notice of redemption, as the case may be.

The Notes, the ADSs deliverable upon conversion of the Notes, if any, and the ordinary shares represented thereby or deliverable upon conversion of the Notes in lieu thereof, have not been and will not be registered under the Securities Act or any state securities laws, and are being offered and sold in the United States only to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S. persons in offshore transaction in reliance on Regulation S under the Securities Act.

This press release shall not constitute an offer to sell or a solicitation of an offer to purchase any securities, nor shall there be a sale of the securities in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful.

About Alibaba Group

Alibaba Group’s mission is to make it easy to do business anywhere. The Company aims to build the future infrastructure of commerce. It envisions that its customers will meet, work and live at Alibaba, and that it will be a good company that lasts for 102 years.

Safe Harbor Statement

This press release contains forward-looking statements. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as “may,” “will,” “expect,” “anticipate,” “future,” “aim,” “estimate,” “intend,” “seek,” “plan,” “believe,” “potential,” “continue,” “ongoing,” “target,” “guidance,” “is/are likely to” and similar statements. In addition, statements that are not historical facts, including statements about the Company’s beliefs, plans and expectations, are or contain forward-looking statements. Alibaba may also make forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission (the “SEC”), in announcements made on the website of The Stock Exchange of Hong Kong Limited (the “Hong Kong Stock Exchange”), in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement. Further information regarding these risks is included in Alibaba’s filings with the SEC and announcements on the website of the Hong Kong Stock Exchange. All information provided in this press release is as of the date of this press release and are based on assumptions that we believe to be reasonable as of this date, and Alibaba does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240529757385/en/

Investor Relations Contact

Rob Lin

Head of Investor Relations

Alibaba Group Holding Limited

investor@alibaba-inc.com



Media Contacts

Justine Chao

justinechao@alibaba-inc.com

Ivy Ke

ivy.ke@alibaba-inc.com

Source: Alibaba Group Holding Limited

FAQ

What did Alibaba announce regarding its Convertible Senior Notes offering?

Alibaba announced the completion of a US$5 billion offering of 0.50% Convertible Senior Notes due 2031.

How much additional Convertible Senior Notes did initial purchasers buy from Alibaba?

Initial purchasers exercised their option to purchase an additional US$500 million aggregate principal amount of the Notes.

What is the purpose of the capped call transactions Alibaba entered into?

The capped call transactions are expected to reduce potential dilution to the ADSs and ordinary shares upon conversion of the Notes.

What conversion premium did Alibaba achieve through these capped call transactions?

The capped call transactions increased the conversion premium to 100% over the last reported sale price of US$80.80 per ADS.

What is the initial conversion rate for Alibaba’s Convertible Senior Notes?

The initial conversion rate is 9.5202 ADSs per US$1,000 principal amount, equivalent to a conversion price of approximately US$105.04 per ADS.

Why are Alibaba’s Convertible Senior Notes not registered under the Securities Act?

The Notes are offered and sold only to qualified institutional buyers and certain non-U.S. persons in offshore transactions, thus they are not registered.