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Alibaba Is Considering Convertible Bond Sale, Following JD.com

Alibaba Is Considering Convertible Bond Sale, Following JD.com

(Bloomberg) -- Alibaba Group Holding Ltd. is seeking to raise $4.5 billion from a convertible bond sale, following a $1.75 billion offering by rival Chinese online retailer JD.com Inc. this week.

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Hangzhou-based Alibaba plans to use the proceeds to fund stock buybacks, it said in a statement Thursday, confirming an earlier Bloomberg News report. The offering includes a so-called greenshoe option that could increase the size of the deal by $500 million.

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American depositary shares of Alibaba fell as much as 2.3% on Thursday morning. They were down 1.2% at 10:08 a.m. in New York, giving the company a market value of about $175 billion.

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. It is leading the way in cutting prices on cloud and artificial intelligence services, while also starting to ramp up bets in AI, a hotbed of global investment activity.

The company’s Chairman Joe Tsai and Chief Executive Officer Eddie Wu said in a letter to shareholders today that it is seeking to balance returning cash to investors with investing in existing and new businesses, including in artificial intelligence.

The company approved an expansion of a share buyback program earlier this year, adding $25 billion in stock repurchases — one of the largest-ever in China.

Bloomberg News reported earlier Thursday that Alibaba was discussing a potential $5 billion convertible bond offering with banks. The Chinese tech company is offering an annual coupon of 0.25% to 0.75% for the securities, which mature in seven years and are non-callable in the first five years, according to terms for the deal seen by Bloomberg. The notes will have a 30% to 35% conversion premium, the terms show.

Citigroup Inc., JPMorgan Chase & Co., Morgan Stanley, Barclays Plc and HSBC Holdings Plc are helping arrange the deal.

Part of the proceeds from the convertible bond offering will be used to repurchase some of Alibaba’s US-listed American depositary shares at the time the deal is priced, as well as to fund future buybacks. Proceeds will also be used to pay for so-called “capped call transactions,” which effectively reduce the potential dilution to shareholders when the bonds are eventually converted into stock.

Read More: Jack Ma Buys Alibaba Stock to Show Support for Struggling Empire

Alibaba’s latest quarterly net income tumbled 86% from a year earlier after an unexplained writedown for losses in its publicly traded holdings, which range from AI firm SenseTime Group Inc. to brick-and-mortar chain Sun Art Retail Group Ltd. That came on top of heightened spending to ward off competitors.

JD.com’s convertible bonds are due in five years and have a coupon of 0.25%.

--With assistance from Sarah Zheng and Julia Fioretti.

(Updates with Alibaba statement, term sheet details from first paragraph.)

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