Alibaba Is Said to Price $4.5 Billion Convertible Bond Sale

(Bloomberg) -- Alibaba Group Holding Ltd. has raised $4.5 billion from a convertible bond sale, in one of the largest such offerings in recent years, according to people familiar with the matter.

The Hangzhou-based company priced the seven-year notes, due 2031, with a coupon of 0.5% and a conversion premium of 30%, the people said, asking not to be identified because the information is private. Orders for the bonds were multiple times oversubscribed, with demand from investors globally, one of the people said.

A representative for Alibaba didn’t immediately respond to a request for comment.

The offering comes as Alibaba needs capital to invest in its core businesses of e-commerce and the cloud, both of which have bled market share during a crackdown on the sector by Chinese authorities and subsequent internal turmoil. Rival Chinese online retailer JD.com Inc. earlier in the week sold $1.75 billion of convertible bonds due in five years.

Alibaba is seeking to strike a balance between returning cash and investing in existing and new businesses, including in artificial intelligence, Chairman Joe Tsai and Chief Executive Officer Eddie Wu said in a letter to shareholders on Thursday. The firm approved an expansion of a share buyback program earlier this year, adding $25 billion in stock repurchases — one of the largest-ever in China.

The company marketed the convertible bonds at an annual coupon of 0.25% to 0.75%, and at a 30% to 35% conversion premium, according to terms of the deal reviewed by Bloomberg News earlier. Alibaba plans to use the proceeds to fund stock buybacks, it said in a statement Thursday, confirming a Bloomberg News report.

The offering — which the company said includes a so-called greenshoe option that could increase the deal size by $500 million — adds to an already busy month for convertible bond issuance. Globally, there have been $10.2 billion worth of such deals this month, dwarfing April’s $4 billion tally, after a pause for the earnings season interrupted a string of $10-billion plus months, according to data compiled by Bloomberg.

Part of the proceeds from the offering will be used to repurchase some of Alibaba’s American depositary receipts at the time of the pricing, as well as to fund future buybacks. Alibaba’s ADRs closed down 2.3% at $80.80 on Thursday. 

Alibaba didn’t outline the scope of the share repurchase in its statement, but the person familiar with the situation said that Alibaba will buy back 14.8 million ADRs, or about $1.2 billion worth of shares, concurrent to the offering. 

Citigroup Inc., JPMorgan Chase & Co., Morgan Stanley, Barclays Plc and HSBC Holdings Plc helped arrange the deal, according to terms seen earlier by Bloomberg News. 

--With assistance from Shikhar Balwani.

(Updates throughout.)

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