Alibaba to raise $3.2 billion via convertible bond to fund cloud growth

Alibaba (9988.HK), the market leader in Chinese e-commerce, announced on Thursday that it intends to raise $3.2 billion by selling a zero-coupon convertible bond in order to finance its global expansion and fortify cloud computing.
According to Dealogic data, the bond will be the biggest of its sort this year, surpassing DoorDash’s (DASH.O), which launches a new tab $2.75 billion transaction in May. In order to address the demand for cloud solutions, Alibaba stated that it would utilize around 80% of the profits to upgrade technology, develop data centers, and enhance services.

The remaining funds will be used to improve e-commerce endeavors’ efficiency and market presence.
According to a term sheet, Alibaba will offer the bond at a conversion premium of 27.5% to 32.5% above the price of its shares listed in the United States. On September 15, 2032, the bond will mature and turn into shares that are listed on a U.S. exchange.
Following a 2.6% decline, the company’s Hong Kong-listed shares were up 2.3% at HK$146.1, reversing course in lockstep with the benchmark Hang Seng Index. On Wednesday, its stock, which is traded in New York, dropped 2.2%. To date, the Hong Kong stock has increased by 71.6%, while the U.S. stock has increased by 71.1%.

The IT company has committed to investing 380 billion yuan ($53.37 billion) over three years, making it one of China’s largest artificial intelligence spenders.
It stated in its quarterly financial report last month that artificial intelligence (AI) was crucial to the growth of cloud revenue, which increased rapidly despite wider operations falling short of revenue projections.

“Our investments in AI have begun to yield tangible results,” CEO Eddie Wu told analysts in an earnings call. “We are seeing an increasingly clear path for AI to drive Alibaba’s robust growth.”

Alibaba raised $5 billion last May through a convertible bond and $1.5 billion in July through an exchangeable bond.
A zero-coupon convertible bond was also unveiled by China Pacific Insurance on Thursday, with the goal of raising HK$15.55 billion ($2.00 billion). Over the last six months, Hong Kong’s stock capital markets have experienced tremendous growth. Since their principle is paid back at maturity if the option to convert into shares is not exercised, convertible bonds have proven very popular.

They also provide the possibility of equity gain, with some paying a monthly. According to Dealogic data, convertible bonds worth $27.8 billion have been issued in the Asia-Pacific area this year, up from $28.7 billion during the same period last year, which was the strongest in three years.