Chinese e-commerce giant Alibaba Group Holding emerged from the shadows of China’s anti-trust investigation as it successfully priced on February 4 a four-tranche bond offering totalling US$5 billion. The transaction included Alibaba’s inaugural sustainability bond – the first in the TMT (technology, media and telecom) sector in Asia.

The SEC-registered deal comprised of a 10-year bond amounting to US$1.5 billion, which was priced at 99.839% with a coupon of 2.125% and a re-offer yield of 2.143%. This represented a spread of 100bp over the US treasuries, or 30bp tighter than the initial price guidance of 130bp area.

The second tranche was for 20 years amounting to US$1 billion, which was priced at 99.265% with a coupon of 2.70% to offer a yield of 2.748%. This was equivalent to a spread of 100bp over the US treasuries, or 40bp back of the initial price range of 140bp area. This was the sustainability bond portion of the offering, achieving a highly competitive pricing as indicated by the spread, which is flat to the 10-year tranche.

The third tranche was for 30 years amounting to US$1.5 billion, which was priced at 99.981% with a coupon of 3.15% and a re-offer yield of 3.151% – or a spread of 120bp over the US treasuries. This was 30bp tighter than the initial price guidance of 150bp area.

The final tranche was for 40 years amounting to US$1 billion, which was priced at 99.978% with a coupon 3.25% and a re-offer yield of 3.251%. This represented a spread of 130bp over the US treasuries, or 30bp inside the initial price range of 160bp area.

The deal was Alibaba’s third issuance in the US dollar bond market after its initial foray in November 2014 in which it raised US$8 billion, followed by a US$7 billion deal that it priced in November 2017. The latest bond transaction will improve the company’s debt maturity profile and expand its capacity to accommodate any funding needs over the next one to two years, according to Moody’s Investors Service, which assigned an A1 rating to the offering.

Limited impact

The proposed notes, Moody’s adds, will have limited impact on Alibaba’s debt leverage, as earnings growth in the coming one to two years should offset the increase in debt.

Moody's has also considered environmental, social and governance (ESG) considerations. In terms of social factors, it says Alibaba is exposed to heightened scrutiny by regulators with respect to perceived anti-competitive behaviour, in turn raising legal, regulatory and reputational risks. These risks, it points out, could impede Alibaba's business growth.

Excluding the sustainability notes, Alibaba intends to use the net proceeds of the issuance for general corporate purposes, including working capital needs, repayment of offshore debt and potential acquisitions of or investments in complementary businesses.

The proceeds from the sustainability bond, on the other hand, are earmarked to finance or refinance its new or existing eligible projects in accordance with its sustainable finance framework. The eligible projects include those in the sectors of green buildings, energy efficiency, Covid-19 crisis response, renewable energy and circular economy and design.

Citi acted as the sustainability structuring adviser for the transaction, as well as an active bookrunner, along with Credit Suisse, Morgan Stanley, J.P. Morgan and China International Capital Corporation.