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DJ Alibaba Sells $5 Billion of Bonds

· 02/05/2021 03:10
By Frances Yoon

Alibaba Group Holding Ltd. sold $5 billion of bonds, showing investors remain eager to back the Chinese e-commerce giant despite its recent run-ins with authorities.

The company issued four sets of bonds priced to yield between 2.143% and 3.251%, Alibaba said in a filing. Alibaba sold $1.5 billion each of 10-year and 30-year debt, plus $1 billion each of bonds due in 20 and 40 years.

The 20-year bonds were designated as sustainability notes, meaning the proceeds will be used to fund projects such as building greener offices or installing more energy-efficient data centers.

Alibaba shares have swung sharply in recent months, after a speech in October by founder Jack Ma prompted Chinese President Xi Jinping to call off the blockbuster listing of Ant Group Co., the company's financial-technology affiliate. Mr. Ma has since largely vanished from public life, though he resurfaced briefly in a video appearance in January.

In December, Chinese authorities launched an antitrust probe into Alibaba. And in January, The Wall Street Journal reported U.S. officials considered adding Alibaba to an investment blacklist that blocks Americans from buying stocks and bonds of certain Chinese companies, though the company wasn't ultimately added.

Joel Liauw, an analyst at CreditSights, said the company was one of Asia's strong borrowers, thanks to its high profitability, steady cash-flow generation and large cash pile. "Although we do expect more headline risks stemming from the U.S.-China geopolitical tensions as well as the antitrust probe, Alibaba's solid credit profile should provide some cushion against a short-to-medium term downturn," Mr. Liauw said in an email.

On Tuesday, Alibaba reported forecast-beating quarterly results, with earnings rising 52% to the equivalent of $12.3 billion, as sales surged 37%.

Annisa Lee, head of Asia-Pacific credit research at Pacific Investment Management Co., said she is constructive on the long-term growth of the Chinese technology sector, and particularly companies that were strategically important to China's growth. The higher interest rates investors receive when they buy tech debt issued by Chinese companies versus their U.S. peers "presents an investment opportunity," Ms. Lee said.

In one example of this, Alibaba has existing dollar bonds due 2037 which are yielding 2.98%. In comparison, Amazon.com Inc., which has similar credit ratings, has a bond due the same year that yields 2.38%, FactSet data show.

In recent years, Alibaba's bonds have generally risen in price as part of a wider market rally. That has pushed down yields and effectively reduced the cost of any new borrowing for Alibaba. Yields on its debt jumped in late December and early January, but have since pulled back.

Alibaba has solid investment-grade credit ratings, with an A1 rating from Moody's Investors Service and similar A+ grades from Fitch Ratings and S&P Global Ratings.

All three ratings companies reiterated those ratings this week. Fitch noted the group's robust profitability and conservative financial position, and said China's tougher stance on antitrust was unlikely to substantially hurt Alibaba's creditworthiness.

S&P said it believed Alibaba can "weather the potential outcomes" of the competition probe, though it said it may cut forecasts for revenue and profit growth authorities tighten antitrust regulation. Moody's said its rating took into account increased regulatory risk and "potential contingent liabilities" tied to Ant.

This is Alibaba's third big sale of dollar bonds, after an $8 billion deal in 2014 and a $7 billion follow-up in 2017.

Units of Citigroup Inc., Credit Suisse Group AG, Morgan Stanley, JPMorgan Chase & Co. and China International Capital Corp. handled the bond sale.

Write to Frances Yoon at frances.yoon@wsj.com

(END) Dow Jones Newswires

February 05, 2021 03:10 ET (08:10 GMT)

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