Financial Services Association, May 24 (Reporter Xu Cihao) Alibaba Group today issued a pricing announcement regarding the issuance of convertible senior notes, stating that it will issue 4.5 billion US dollars of convertible senior notes due in 2031, with an interest rate of 0.5%.

The terms show that these notes will have a conversion premium of 30% to 35%. Citigroup, J.P. Morgan Chase, Morgan Stanley, Barclays, and HSBC are assisting in arranging the deal.

According to its announcement, Ali is expected to grant additional options to initial purchasers. The total principal amount of the purchased notes can reach up to 500 million US dollars, and the relevant options can be exercised within 13 days from the date the notes are issued. This means that the deal could raise up to $5 billion in capital.

According to reports, the net amount of capital raised will be mainly used for three aspects: repurchasing approximately 14.8 million American Depositary Shares at $80.80 per share (last transaction price of each American Depositary Share on May 23); funding for further repurchases under the share repurchase plan; and providing funding of 573.75 million US dollars needed to establish a limited-price bullish transaction.

As for repurchases, Alibaba is repurchasing the estimated initial hedging value of the entire transaction, which is expected to facilitate initial hedging for investors interested in hedging notes. The relevant price is the closing price of US stocks on May 23, 2024.

“Simultaneous repurchases and future repurchases under the share repurchase plan will be paid with funds raised from the issuance of notes or other cash. Overall, it is expected to offset the potential dilution of shares when the notes are converted.” Alibaba said in an announcement.

It is worth mentioning that during Alibaba's 2024 first quarter results conference call, Alibaba management said that currently Alibaba still has about $29 billion in its accounts that can be used for future share repurchases.

“As management, we will definitely pay attention to the company's future cash flow when considering future shareholder return plans and arrangements. At the same time, we also need to consider investment requirements in core business, as well as recent investment in new fields, such as AI and AIDC cross-border business. Based on this, we are willing to continue shareholder returns if we have additional resources. When making shareholder returns, we consider stock repurchases and dividends as two ways of shareholder returns rather than considering them separately.” The Alibaba management mentioned above will say the results for the first quarter of 2024.

Furthermore, it is worth noting that the “limit price bullish transaction” clause attracted the attention of the market. According to the announcement, the maximum price of this transaction is expected to be 100% higher than the final transaction price of American Depositary Shares on the day the notes were issued and priced. In other words, Alibaba will buy about 100% of its share call options.

Huang Lichong, president of Huisheng International Capital, told the Financial Federation reporter that convertible bonds generally have relatively low interest; in fact, they use leverage to boost stocks.

According to Huang Licong, generally speaking, the current situation of Chinese securities in the US market is not very good, so Alibaba must find a way to reduce tradable shares in the US market.

Some market analysts also pointed out that Ali has sufficient cash, and that issuing convertible bonds is “developing itself in a smart way,” and that the world's leading technology companies such as Apple and Amazon are doing this: by the end of 2023, Ali's overall balance ratio was 37.3%, far lower than Amazon's 61.8% and Apple's 79% during the same period. “This is good for shareholders. It also means that Ali is optimistic about its own development prospects and is confident in increasing value.”

As of press release, Alibaba's US stock closed at 80.80 US dollars, with a total market value of 19.6 billion US dollars.