Friday, 22 March 2019

Investment-Grade Bond

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Alibaba Group’s US$8bn blockbuster debut in the bond markets rewrote the playbook for Asia’s top issuers. As well as smashing the record as the region’s biggest international bonds, the move put the Chinese e-commerce giant on a par with its better-known US peers, challenging the long-held consensus that companies from Asia’s private sector need to offer premium pricing to access the global markets.

Just two months after completing the largest initial public offering in history, Alibaba announced its intention to sell Reg S/144A senior unsecured notes on November 13 2014. Roadshows began three days later and involved meetings with over 300 investors around the world.

The result was a landmark six-tranche US$8bn offering that received a blowout response with orders of US$55bn and reinforced Alibaba’s position as one of the world’s top technology companies. With strong support from US buyers, Hangzhou-based Alibaba achieved its goal of pricing in line with its US technology peers.

The US was the biggest source of demand for each tranche, while some Asian investors, used to higher yields from China’s private sector, saw the credit struck as being expensive.

Nonetheless, books were covered within 90 minutes, and the final order book was the second-largest of all time, behind only Verizon’s gargantuan offering in 2013.

The size of the bonds made it the largest debut international offering of all time, as well as Asia’s largest single such issuance. Over 1,000 investors participated across the six tranches.

At final pricing, all tranches had tightened substantially from as much as 27bp for the 20-year piece to 10bp for the three-year portion, with the bonds tightening further in secondary markets initially.

The three-year fixed tranche priced at 1.625%, which was 70bp over US Treasuries, but around 40bp inside state-owned China National Petroleum Corp’s bonds, issued just two days earlier.

Not only did Alibaba’s bonds price inside comparable Chinese credits, they were also competitive against paper of US blue chips.

The bonds came 35bp–50bp inside other large Chinese tech companies, such as Baidu and Tencent, but, perhaps, most striking was the seven-year tranche’s pricing inside AA– rated Amazon’s 2022s and the 10-year pricing easily inside eBay’s interpolated curve.

The deal will be remembered as a significant moment in China’s march into the global capital markets.

Active bookrunners were Morgan Stanley, Citigroup, Deutsche Bank and JP Morgan. Credit Suisse and Goldman Sachs were passive bookrunners.

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