Alibaba sells $7 billion of bonds

Chinese e-commerce giant Alibaba Group Holding Ltd. tapped the corporate bond market this week with a five-part deal that included a 40-year maturity, making it the company’s longest-dated bond.

The company offered five tranches in total, starting with a 5.5-year tenor and including 10-year, 20-year and 30-year notes. The 10-year offered an additional 108 basis points over Treasurys.

It’s the company’s second visit to the bond market in three years, after it sold $8 billion of debt in 2014, just months after its initial public offering, which was the biggest ever in the U.S.

Proceeds will be used for general corporate purposes, including to invest in long-term cash flow growth. Alibaba has a single A rating from Moody’s, S&P and Fitch.

Alibaba (BABA) came to market after a strong set of earnings for its fiscal second quarter and another record Singles Day, the one-day shopping holiday that it created, which generated sales of more than $25 billion this November. The company has said it plans to maintain a net cash position and will keep leverage at 1.5 times, said CreditSights analysts Sandra Chow and Luther Chai.

“We think the 20-year bonds are the most attractive entry point,” they wrote in commentary. “The pickup in Alibaba spreads and our comfort with its fundamentals make it particularly attractive for ratings constrained investors in our view.”

The new 10-year notes traded at a median price of 99.570 cents on the dollar on Thursday, according to trading platform MarketAxess.

Alibaba’s existing 10-year notes, the 3.600% notes that mature in November of 2024 last traded at 103.370 cents on the dollar to yield 3.043%, or at a spread of 63 basis points over Treasurys, according to MarketAxess.

Asia’s secondary dollar bond markets have been volatile in recent months and other tech deals, including by Oracle Corp. (ORCL) CBS Corp. (CBS) and Apple Inc. (AAPL) were priced with bigger-than-expected new issue concessions, they said in earlier commentary.

“This said, Alibaba’s proposed bond is likely to receive strong support from Asian accounts owing to its robust credit profile, a ‘home bias’ among local investors and a need for sector diversification: the tech sector is a small component with the Asian credit markets,” said the note.

CreditSights has an outperform recommendation on Alibaba’s outstanding 10-year notes and a market perform rating on the rest of its bonds, and views the deal as a good way to get exposure to one of the most stable names in the Asian investment-grade universe.

On the equity side, the company’s stock was down 1% in premarket trade Friday, but has gained 102% in 2017, while the S&P 500 (SPX) has gained 18% and the Dow Jones Industrial Average (DJIA) has gained 23%.

Ciara Linnane

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