Alibaba Group Holding Ltd. sold $8 billion of bonds in its debut sale at yields that were lower than originally offered after the Chinese e-commerce company got at least $57 billion of orders from investors.
“The [yield] premium we see associated with Chinese companies is absent in this case,” Dorian Garay, a New York-based money manager for the global investment-grade debt fund at ING Investment Management, said in a telephone interview. “It feels like new-issue concession is non-existent.”
Alibaba’s debt offering adds to a banner year for corporate bonds with worldwide issuance of $3.8 trillion on pace to exceed $4 trillion for the first time. The Hangzhou, China-based company, which raised a record $25 billion in an initial public stock offering in September, will use proceeds to refinance some credit agreements, according to a Nov. 13 statement.
The banks underwriting the biggest dollar-denominated notes by an Asian company lowered the premium by as much as 0.27 percentage point on its longest-dated bond, according to a person with knowledge of the offering, who asked not to be identified because the details are private. Reduced yields are a sign of strong demand.
Alibaba sold the largest portions in equal $2.25 billion offers of five- and 10-year notes, according to data compiled by Bloomberg. The 2.5 percent, five-year notes sold at a yield of 95 basis points above similar-maturity Treasurys,and the 3.6 percent, 10-year securities sold at a relative yield of 128 basis points, the data show.
The pricing doesn’t seem to reflect the risks associated with the name, according to Garay, who said he’s not purchasing the bonds.
Debt of Chinese companies typically yield about 20 basis points to 50 basis points more than that of their U.S. peers, Anthony Leung, a Nomura Holdings Inc. credit research analyst in Hong Kong, said in a report this week. A basis point is 0.01 percentage point.
Alibaba also sold $1.5 billion of 3.125 percent, seven-year notes, $1 billion of 1.625 percent, three-year securities, $700 million of 4.5 percent, 20-year bonds, and $300 million of three-year floating-rate notes, Bloomberg data show. The company initially offered the 20-year bonds at a premium of 175 basis points above similar-maturity Treasurys, according to a person with knowledge with the offering.
Alibaba abandoned plans to include five-year floaters, according to a person familiar with the offering who asked not to be identified, citing lack of authorization to speak publicly.
The $8 billion sale eclipsed a $6.5 billion issue last month by Bank of China Ltd. to become the biggest dollar- denominated offering by an Asian company.
The company is led by billionaire Chairman Jack Ma, who founded it from his apartment in 1999 with $60,000. Its main marketplaces include Taobao, which links individual buyers and sellers, and Tmall.com, which connects retailers and consumers.
While bond investors have been known to pad orders to ensure they get a bigger piece of securities in high demand, the size of Alibaba’s order book is rivaling those for other large offerings during the past two years, including sales by Apple Inc. and Verizon Communications Inc.
For Apple’s $17 billion offering in April 2013, the largest corporate-bond sale ever at the time, investors put in orders for $50 billion, people with knowledge of the transaction said. Verizon attracted buyers for as much as $100 billion before its record $49 billion offering in September 2013, people with knowledge of the deal said.
Morgan Stanley, Citigroup Inc., Deutsche Bank AG and JPMorgan Chase & Co. managed Alibaba’s debt sale.
Alibaba’s notes are rated A+, or the fifth-highest investment-grade ranking, by Standard & Poor’s and an equivalent A1 by Moody’s Investors Service.
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