Alibaba, based in Hangzhou, China, plans to issue $5 billion in convertible bonds to fund share repurchases and artificial intelligence projects. The move is part of the company’s strategy to balance buybacks with significant investments in AI, addressing challenges in transferring cash out of mainland China.
Alibaba has announced plans to raise $5 billion through the issuance of convertible bonds to finance share buybacks and invest in generative artificial intelligence initiatives. The company, based in Hangzhou, China, will issue $4.5 billion in notes convertible into stock at $105.04 per share, maturing in 2031 with a 0.5 percent coupon. An additional $500 million overallotment will likely be exercised, according to insiders.
The raised funds will primarily be used to repurchase shares at the current price of $80.80, support future buybacks, and mitigate dilution if the share price reaches the convertible price. This financing approach aligns with Alibaba’s strategy to balance significant share repurchases with substantial investments in AI.
Alibaba’s leadership, including chair Joe Tsai and CEO Eddie Wu, emphasized the necessity of AI investments to stay competitive. The company has already spent $12.5 billion on share repurchases in the fiscal year ending March 31, reducing the total share count by 5 percent and distributing $2.5 billion in dividends to shareholders.
Some analysts view Alibaba’s issuance of convertible debt as perplexing, suggesting it raises equity at a high future price to buy back shares at a lower current price. Market reactions included an 8 percent decline in Alibaba’s stock price, reflecting investor concerns.
This financing move may be driven by challenges in transferring cash out of mainland China, affecting not just Alibaba but other Chinese and foreign firms as well. Despite holding substantial cash reserves, including $30 billion in dollars and $52.6 billion in RMB, accessibility to these funds remains restricted. Alibaba’s CFO Toby Xu noted that the buybacks would be influenced by the company’s ability to move cash offshore.
