Alibaba's US$4.5 billion convertible bond sale 'oversubscribed', as tech giant builds war chest to fund share buy-backs

Alibaba Group Holding is selling up to US$5 billion worth of convertible bonds to fund its share buy-backs, as leaders of the Chinese tech giant declared e-commerce and cloud computing as its core businesses in a move "towards strategic clarity".

The Hangzhou-based firm, which owns the South China Morning Post, said it expects to raise close to US$4.5 billion from initial sales, while giving purchasers the option to buy up to an additional US$500 million of notes, according to filings made to the Hong Kong and New York stock exchanges on Friday and Thursday.

The offering, which is Asia's largest-ever convertible bond transaction and the world's biggest since 2008, has received positive market response and was oversubscribed multiple times, according to people familiar with the matter, who requested anonymity because the information is private.

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Alibaba's latest move demonstrates the management's confidence in the company's fundamentals, according to one of the sources. The firm chose to issue convertible bonds rather than US-dollar bonds because they entail lower financing costs, and conversion will only be triggered after the price of Alibaba's American depositary shares (ADS) reaches US$161.6, the person said.

An advertisement for Alibaba's Tmall e-commerce platform at a subway station in Shanghai. Photo: Bloomberg alt=An advertisement for Alibaba's Tmall e-commerce platform at a subway station in Shanghai. Photo: Bloomberg>

The company announced in the first quarter it would spend US$4.8 billion to buy 524 million ordinary shares, equivalent to 65 million ADS, marking its most aggressive stock buy-back since 2021. It has repurchased a total of US$12.5 billion shares in its financial year ended March.

On Thursday, Alibaba chairman Joe Tsai and chief executive Eddie Wu Yongming sent out their first letter to shareholders since taking the reins from Daniel Zhang Yong last September, saying the company is returning to a start-up mindset.

"In the past 25 years, Alibaba has grown consistently, but acquired 'large company' characteristics," the letter read. "For the next 10 years, we see ourselves again as a start-up defined by entrepreneurship, innovation and our mission 'to make it easy to do business anywhere'."

Tsai and Wu highlighted e-commerce and cloud computing as Alibaba's two core businesses. This comes after the company announced in March last year a sprawling restructuring that would carve out six independently-run entities from the firm, but later cancelled plans to launch separate initial public offerings for the Cainiao smart logistics operation and Alibaba Cloud.

The leaders said Alibaba's domestic and international e-commerce units - Taobao and Tmall Group and International Digital Commerce Group - now sit at the centre of the group's core e-commerce business, while other divisions such as Cainiao and on-demand delivery business Ele.me are expected to bring "synergies that make our e-commerce businesses more valuable".

Alibaba also aims to be the "leading public cloud infrastructure and platform technology provider in China".

The leaders also reiterated two strategic directions first announced by Wu when he took office: "user first", which prioritises user experiences in business strategy and product design to drive retention and repeat purchases, and "focus on AI".

"Each of our businesses has massive numbers of use cases, all of which can use AI applications to unleash powerful value, and the deployment of AI will increase demand for computing and drive growth for Alibaba Cloud," Tsai and Wu wrote. Alibaba aims to be the "leading public cloud infrastructure and platform technology provider in China", they said.

The company will continue to invest for two purposes: to accelerate growth in its core businesses and to maintain leadership in fundamental technologies and innovations, including artificial intelligence.

The leaders said the company is taking a "long-term perspective when making hard decisions".

"We think in 10-year cycles as the development cadence of technology businesses typically experience the phases of investment, growth, harvest, profit, and invariable decline," they wrote.

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