China’s largest e-commerce player is issuing up to US$ 5 billion worth of bonds

Alibaba proposed to launch four senior unsecured USD bonds today, with tenors of 10-year, 20-year, 30-year and 40-year respectively. The initial yield guidance are UST yield plus 130, 140, 150 and 160 bps respectively (indicative yields: 2.395%, 3.14%, 3.438% and 3.538%).

The issuer’s credit rating is A+ / A+ (S&P / Fitch), and the proceeds from this issuance will be used on repayment of offshore debt and general corporate purposes.

Alibaba was established in 1999, and has completed its secondary listing on HKEX in November 2019 (Stock Code: 9988.HK). The current market capitalization is around HK$5.7 trillion. The Group’s major businesses diversifies into trading, e-commerce, search engine, third-party payment, cloud computing, etc. Some of the well-known brands and investments under its umbrella include Taobao, Tmall, Ant Financial, Aliyun, Eleme, Hema Fresh and Cainiao.

For the nine months ended 31-Dec-2020, the Group recorded an operating revenue of RMB ¥529.9 billion, up 34% YoY. The adjusted EBITDA was ¥166.9 billion, up 32% YoY. The overall earnings growth was impressive.

Credit wise, the Group had a total debt size of ¥117.7 billion at end-2020, while its cash balance was ¥456.3 billion, representing healthy leverage and liquidity. With the strong earnings performance, its total debt to adjusted EBITDA was only 0.6x, in addition to its steady growth of free cash flow, Alibaba’s credit profile and solvency are excellent.

It has been 3 years since Alibaba launched its last batch of USD bonds, we believe the Group would like to grasp the opportunity to issue bonds with lower cost amid this ultra-low rate environment. The tenors of these four bonds ranged from 10 years to 40 years, which their initial yield guidance are around 20 to 40 bps higher than the existing bonds with similar tenors.

Considering that the final yield may not be as high as the guidance, we believe the bonds with higher spreads can offer better marginal returns. Among them, the 20-year USD bond has a yield guidance of 3.14%, which we think is more attractive and suitable to stable income seekers.