Investment-grade Bond: Alibaba Group’s multi-tranche US$5bn offering

IFR Asia Awards 2021
3 min read
Morgan Davis

Shopping for success

Alibaba Group Holding’s US$5bn four-tranche bond sale was a remarkable return to the offshore market for the Chinese technology giant. But it was not just the size of the deal that should be lauded.

Alibaba’s transaction, which was its first offering in US dollars since 2017, was perfectly executed from start to finish.

The deal was split between a US$1.5bn 10-year bond priced at 100bp over Treasuries, a US$1bn 20-year note priced at 100bp over, a US$1.5bn 30-year portion at 120bp over and a US$1bn 40-year at 130bp over. Pricing tightened from initial guidance of Treasuries plus 130bp, 140bp, 150bp and 160bp areas, respectively.

The SEC-registered deal was hot, raking in an order book of US$38bn at its peak. A slew of the orders came from American investors, which was a feat in itself.

When Alibaba marketed its trade in February, Chinese technology companies were under increased regulatory pressure. The A1/A+/A+ rated e-commerce giant had seen its secondary curve widen in early January, following the outgoing Trump administration’s threats to sanction Chinese companies. At the same time, Chinese regulators were taking a closer look at Alibaba under an antitrust investigation that began at the end of 2020.

Despite the negative backdrop, investors jumped into the deal.

All parts of the deal priced inside Alibaba’s existing curve, but the most tightly priced tranche was the 20-year bond, which came with a sustainability label. Investors proved keen to buy the unusual long-dated sustainability piece, allowing the issuer to price the notes flat to the 10-year tranche.

The sustainability bond was the first of this type to be sold by a Chinese technology company and was Asia Pacific’s longest-dated sustainability bond offering. The proceeds from the tranche were earmarked for projects including green buildings, energy efficiency, Covid-19 crisis response and renewable energy.

Alibaba had been looking at selling a sustainability bond since October 2020, beginning by considering the tenor. The syndicate team recommended tapping the 20-year part of the curve, which would push much farther than the three-year or five-year tenors generally seen for green or sustainability notes in Asia.

The pricing outcome showed a clear demand for long-dated ESG bonds, but also exhibited a greenium, which issuers have long sought. The deal provided evidence that existing investors will place larger orders if they can put bonds into both their conventional and ESG portfolios, even if it did not necessarily increase the number of investors.

Citigroup, Credit Suisse, Morgan Stanley, JP Morgan and China International Capital Corp were joint bookrunners. Citigroup was sustainability structuring adviser.

Sustainalytics provided a second-party opinion for the sustainable financing framework.

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