TMTPost -- Alibaba Group Holding Ltd. Is set to launch one of its largest offerings through convertible bond sale these years to fund buyback.

Credit：Alibaba

Alibaba plans to raise US$4.5 billion by sales of convertible notes that will mature on June 1, 2031,  unless earlier redeemed, repurchased or converted in accordance with their terms prior to such date, according to a filling with the Hong Kong Stock Exchange on Thursday. Alibaba expects to grant initial subscribers a so-called greenshoe option that allows them to purchase up to US$500 million worth of additional notes., exercisable for the settlement within a 13-day period. That means Alibaba could ultimately increase the offering size to US$5.0 billion.

American said at the filling that it intends to use the net proceeds from the note offering to repurchase a number of its American depositary shares (ADSs), and fund further share repurchases from time to time under its existing share repurchase program. The filling didn’t disclose the coupon rate of its proposed note. The company marketed the note at an annual coupon of 0.25% to 0.75%, and at a 30% to 35% conversion premium, A Bloomberg report cited terms of the deal earlier Thursday.

The new note offering came as Alibaba ramped up buyback over the past months. The Chinese e-commerce powerhouse announced last month it has repurchased a total of 524 million ordinary shares (equivalent of 65 million ADSs) for a total of US$4.8 billion in its fourth fiscal quarter ended March 31, 2024, the second largest ever buyback after beefing up its repurchase program a month earlier. The outlay is second only to the $5.1 billion it spent on shares in the quarter ended September 2021. In February, Alibaba approved a US$25 billion increase to its share-repurchase program through March 2027.  During the fiscal year 2024, Alibaba paid, for the first time in its history, a dividend of US$2.5 billion, and bought back a total of 1,249 million ordinary shares worth of US$12.5 billion.

Alibaba Chairman Joe Tsai and Chief Executive Officer (CEO) Eddie Wu suggested the management works to strike a balance between returning cash and investing in existing or new businesses. In their letter to shareholders released on Thursday, these executives said returning cash to shareholders does not mean they will stop investing, instead, Alibaba will continue to invest in two areas: the first, to accelerate our core businesses’ growth, and second, to maintain leadership in fundamental technologies and innovation, including artificial intelligence (AI).

Tsai and Wu hailed AI as a catalyst that has re-ignited Alibaba’s startup passion and imagination, and noted all of use cases of its businesses can use AI applications to unleash powerful value, and the deployment of AI will increase demand for computing and drive growth for Alibaba Cloud. They stressed significance of accelerate AI development. “AI will not be a threat but will herald in massive opportunities as the driver for breakthrough user experience and business models. If we don't keep up with the constant and marvelous improvements that AI is showing us on a daily basis, we will be displaced,” they cautioned.