Alibaba has announced an investment of $3.2 billion into the game with a coupon convertible bond that matures in 2032. In its announcement, the firm mentioned that the funds will go into cloud infrastructure upgrades and international growth.
According to reports, this is one of the biggest convertible bond deals of the year, eclipsing DoorDash’s $2.75 billion deal from May. In its statement, the company mentioned that more than 80% of the funds would be used to expand data centers, improve technology, and boost cloud services to meet the increasing demand. The rest, according to Alibaba, will go into improving how it runs its e-commerce operations and making its market presence stronger.
The bond will convert into US-listed shares, which are expected to carry a 27.5% to 32.5% premium on the firm’s current US stock price. It is a zero-coupon structure, which means no interest will be paid out during its lifetime; it just flips into stock if exercised. Alibaba’s bond matures on September 15, 2032, and offers investors an option to convert to equity. That’s a long bet, but one that clearly lines up with how the company sees its cloud business and AI projects unfolding.
Alibaba makes heavy bet on AI amid stock swings
Alibaba raised $1.5 billion in July via an exchangeable bond and $5 billion in May last year through a convertible bond. However, this $3.2 billion is more targeted, because it is about improving its cloud dominance and funding overseas growth at a time when everyone is watching where Chinese tech giants move next. According to its CEO, Eddie Wu, in the company’s last earnings call: “Our investments in AI have begun to yield tangible results.”
He highlighted that Alibaba sees artificial intelligence as the driving force behind its cloud revenue, even though total company revenue came in lower than expected. Alibaba has announced plans to invest 380 billion yuan (approximately $53.37 billion) over three years into AI tech, making it one of China’s biggest investors in this space.
The news triggered the market, with Alibaba’s Hong Kong-listed stock rising 2.3% to HK$146.1 on Thursday, after dipping earlier in the session. The stock has gained 71.6% this year. But over in New York, shares were down 2.2% on Wednesday. Still, US-listed shares are also up about 71.1% year-to-date. So despite day-to-day swings, the long game is clearly what investors are eyeing. This deal also comes as convertible bonds get hot again across Asia.
Hong Kong’s capital markets have seen a jump in deals over the last six months. Another player, China Pacific Insurance, just launched its own zero-coupon convertible bond targeting HK$15.55 billion ($2.00 billion). According to Dealogic, the Asia-Pacific region has seen $27.8 billion in convertible bonds so far this year, compared to $28.7 billion by this time last year. That makes this the strongest year for such deals in three years.
