Alibaba Group Announces Proposed Offering of Convertible Senior Notes

Rhea-AI Summary

Alibaba Group has announced a proposed offering of $4.5 billion in Convertible Senior Notes due 2031. This private offering is aimed at qualified institutional buyers under Rule 144A and certain non-U.S. persons pursuant to Regulation S. An additional $500 million may be offered based on initial purchaser options. Proceeds will fund share repurchases and capped call transactions, reducing potential dilution upon note conversion. The notes, maturing on June 1, 2031, will be senior unsecured obligations. Holders can convert notes into cash, ADSs, or a combination thereof. The initial conversion rate and interest rate will be determined at pricing. The capped call transactions will help mitigate dilution and cash payments.

Positive

• Proposed offering of $4.5 billion in Convertible Senior Notes, with an option for $500 million additional notes.
• Proceeds to fund share repurchases, potentially increasing market price of ADSs and/or ordinary shares.
• Capped call transactions expected to reduce potential dilution upon note conversion.
• Convertible notes provide flexibility for holders to convert into cash, ADSs, or a combination.
• Notes to mature on June 1, 2031, ensuring long-term funding.

Negative

• Private offering indicates the notes won't be registered under the Securities Act or state laws.
• Impact on market price of ADSs and/or ordinary shares is uncertain and depends on various factors.
• No assurance that the Notes Offering and/or share repurchase program will be completed.
• Potential for market price manipulation by Option Counterparties or their affiliates.

Insights

Financial Analyst

Alibaba Group's proposed offering of $4,500 million in Convertible Senior Notes is a significant move. Convertible Senior Notes are debt instruments that can be converted into equity, offering a flexible financing method. The company plans to use the proceeds mainly for share repurchases. This strategy can be beneficial because repurchasing shares reduces the number of outstanding shares, potentially boosting the earnings per share (EPS) and stock price. Additionally, the long maturity date of 2031 suggests Alibaba is securing long-term financing at current market conditions, possibly anticipating favorable interest rates compared to future expectations.

However, investors should note the potential dilution if the Notes are converted into equity. The capped call transactions aim to mitigate this but up to a certain limit, adding complexity to the overall impact on share value. The company's choice of senior unsecured obligations means these notes are lower risk compared to unsecured debt, but still secondary to any secured debts the company might incur.

Market Research Analyst

The introduction of convertible notes can lead to a variety of market reactions. Initially, the hedging activities by the Option Counterparties, who may purchase ADSs or enter derivatives transactions, could create upward pressure on Alibaba's stock price. This activity may be temporary, influenced by the market's view on the expectations of conversion and share repurchase. In the long term, the share repurchase could be seen positively as it signals confidence from the management in the company's intrinsic value and future prospects. However, the effect of capped call transactions and how much they will counteract potential dilution will depend heavily on market conditions and the stock's performance relative to the cap price.

For retail investors, this complexity means it's essential to stay informed about Alibaba's stock price movements and market conditions following the announcement. Share repurchases can often indicate a company's belief that its shares are undervalued, offering a potential buying signal. Conversely, the issuance of convertible notes indicates an increase in leverage, which can be a double-edged sword if not managed prudently.

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 a proposed offering (the “Notes Offering”), subject to market and other conditions, of US$4,500 million aggregate principal amount of Convertible Senior Notes due 2031 (the “Notes”) in a private offering 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 Company expects to grant the initial purchasers in the Notes Offering an option to purchase up to an additional US$500 million aggregate principal amount of the Notes, exercisable for settlement within a 13-day period, beginning on, and including, the first date on which the Notes are issued.

Alibaba Group intends to use the net proceeds from the Notes Offering to (i) repurchase a number of its American depositary shares (“ADSs”), each currently representing eight ordinary shares pursuant to its existing share repurchase program, concurrently with the pricing of the Notes Offering in privately negotiated transactions effected through one or more of the initial purchasers or their affiliates, as its agent, as described below (the “Concurrent Repurchase”); (ii) fund further share repurchases, from time to time, under the Company’s existing share repurchase program; and (iii) fund the costs of entering into the capped call transactions described below.

When issued, the Notes will be general senior unsecured obligations of Alibaba Group. The Notes will mature on June 1, 2031, unless earlier redeemed, repurchased or converted in accordance with their terms prior to such date.

Holders may convert all or any portion of the Notes, in integral multiples of US$1,000 principal amount, at their option at any time prior to the close of business on the third trading day immediately preceding the maturity date. Upon conversion, the Company will pay or deliver, as the case may be, cash, ADSs, or a combination of cash and ADSs, at its election. Holders may also elect to receive ordinary shares in lieu of any ADSs deliverable upon conversion. The interest rate, initial conversion rate and other terms of the Notes will be determined at the time of pricing of the Notes.

Capped Call Transactions

In connection with the pricing of the Notes, the Company expects to enter into capped call transactions with one or more of the initial purchasers and/or their affiliates and/or other financial institutions (the “Option Counterparties”). The capped call transactions are generally expected to reduce potential dilution to the ADSs and the ordinary shares of the Company represented thereby upon any conversion of the Notes and/or offset any cash payments that the Company will be then required to make in excess of the principal amount of the converted Notes, with such reduction and/or offset subject to a cap expected to be 100% over the last reported sale price of the ADSs on the day the Notes Offering is priced, and subject to the Company’s ability to elect, subject to certain conditions, to settle the capped call transactions in cash, in whole or in part (in which case the Company would not receive any ADSs from the Option Counterparties to the extent of the cash settlement of the capped call transactions). If the initial purchasers exercise their option to purchase additional Notes, the Company expects to use a portion of the net proceeds from the sale of the additional Notes to enter into additional capped call transactions with the Option Counterparties and the remainder to fund further share repurchases, from time to time, under the Company’s existing share repurchase program.

In connection with establishing their initial hedges of the capped call transactions, the Option Counterparties or their respective affiliates expect to purchase the ADSs and/or ordinary shares and/or enter into various derivative transactions with respect to the ADSs and/or ordinary shares concurrently with or shortly after the pricing of the Notes. This activity could increase (or reduce the size of any decrease in) the market price of the ADSs and/or ordinary shares, other securities of the Company or the price of the Notes at that time. The effect, if any, of this activity, including the direction or magnitude, on the market price of the ADSs and/or ordinary shares or the price of the Notes will depend on a variety of factors, including market conditions, and cannot be ascertained at this time.

In addition, the Option Counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivative transactions with respect to the ADSs, ordinary shares, the Notes or other securities of the Company and/or purchasing or selling the ADSs, the ordinary shares, the Notes or other securities of the Company in secondary market transactions following the pricing of the Notes and prior to the maturity of the Notes (and are likely to do so following any conversion of the Notes, repurchase of the Notes by the Company on any fundamental change repurchase date or otherwise, in each case, if the Company opts to unwind the relevant portion of the capped call transactions early). The effect, if any, of this activity on the market price of the ADSs and/or the ordinary shares, or the price of the Notes will depend on a variety of factors, including market conditions, and cannot be ascertained at this time. Any of this activity could, however, also cause or avoid an increase or a decrease in the market price of the ADSs and/or the ordinary shares, other securities of the Company or the price of the Notes, which could affect whether the holders convert the Notes and value of the consideration that the holders will receive upon conversion of the Notes. In addition, any of the Option Counterparties may choose to engage in, or to discontinue engaging in, any of these transactions and activities with or without notice at any time, and their decisions will be in their sole discretion and not within the Company’s control.

Concurrent and Future Repurchases

The Concurrent Repurchase is expected to facilitate the initial hedges by investors who desire to hedge their investments in the Notes, as the Company intends to repurchase the entire expected initial delta of the transaction, after taking into account purchases made by Option Counterparties in connection with establishing their initial hedges of the capped call transactions. The Company expects the purchase price in the Concurrent Repurchase to be the last reported sale price per ADS on the New York Stock Exchange on May 23, 2024. In addition to the Concurrent Repurchase, the Company may also repurchase additional ADSs and/or ordinary shares on the open market after the pricing of the Notes and from time to time. The Concurrent Repurchase and future repurchases pursuant to the Company’s share repurchase program will be funded by the net proceeds of the Notes Offering and other cash on hand, and, in the aggregate, are generally expected to offset potential dilution to the holders of the Company’s ADSs (or ordinary shares) upon conversion of the Notes. Our repurchase activities, whether concurrently with the pricing of the Notes or otherwise pursuant to our existing share repurchase program, could increase, or reduce the magnitude of any decrease in, the market price of the ADSs and/or ordinary shares and/or the price of the Notes.

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.

This press release contains information about the pending Notes Offering, and there can be no assurance that the Notes Offering and/or the Company’s share repurchase program (or any portion thereof) will be completed.

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 intended use of proceeds, the terms of the Notes, the anticipated terms of, and the effects of entering into, the capped call transactions and the actions of the Option Counterparties and their respective affiliates and whether the Company will complete the Notes Offering, 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/20240523125145/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 is Alibaba's proposed offering of Convertible Senior Notes?

Alibaba proposed an offering of $4.5 billion in Convertible Senior Notes due 2031, with an option for $500 million additional notes.

How will Alibaba use the proceeds from the Convertible Senior Notes offering?

Proceeds will fund share repurchases and capped call transactions to reduce potential dilution.

What are the terms of Alibaba's Convertible Senior Notes?

The notes are due June 1, 2031, and can be converted into cash, ADSs, or both. The initial conversion rate and interest rate will be determined at pricing.

What is the purpose of the capped call transactions in Alibaba's notes offering?

Capped call transactions aim to reduce dilution to ADSs and ordinary shares upon note conversion.

Will Alibaba's Convertible Senior Notes be registered under the Securities Act?

No, the notes will not be registered under the Securities Act or state securities laws.

What is the maturity date for Alibaba's Convertible Senior Notes?

The notes will mature on June 1, 2031.