Strong Demand Sees Alibaba’s Bond Offering Highly Oversubscribed

Bonds worth approximately $7 billion were sold by Alibaba on Wednesday in what was a highly oversubscribed deal with investors ordering over six times the securities that were for sale. Alibaba’s bond offering eclipsed that of China Evergrande Group which sold securities worth $6.6 billion five months ago and was then Asia’s biggest sale by a non-bank issuer.

While interest had not been expected to be extremely high, expectations that there would be high demand for the bond were already there in the run-up to the offering.

“Alibaba is a fundamentally sound company with a dominant market position and solid positive cash flows. We expect this issue to do well with interest also coming from global (more specifically U.S.) investment grade accounts,” BNP Paribas Asset Management’s portfolio manager, Alaa Bushehri, said.

Different maturity periods

According to sources orders from investors reached $46 billion. The notes were sold in five parts each with different maturity periods ranging from 5.5 years to 40 years. The 40-year bonds will have a yield of 4.4% and that is 1.58% more than comparable government debt. Alibaba’s first bond sale took place three years ago where $8 billion was raised and remains the biggest issue denominated in U.S. dollars by an Asian firm that is not based in Japan.

The successful bond offering comes a few weeks after Alibaba hit a new sales record during the Singles Day shopping festival which is held on the 11th of November. Sales rose by approximately 39% from last year to reach a record $25.2 billion in 24 hours, exceeding estimates by Citigroup and defying worries of a Chinese economic slowdown. During the peak times, the processors of Alibaba were handling 256,000 transactions a second. Most of the shoppers, about 90%, made their orders from mobile phones.

Click and mortar stores

Among the strategies Alibaba is employing to deepen its reach and keep competitors at bay is integrating offline and online retail. Besides acquiring malls and department stores, the Chinese retail giant has also inked partnerships with convenient stores with a view to making them storage and delivery centers.

Alibaba is also transforming about 100,000 retail stores into smart outlets where well-known brands are participating. This will make it possible for suggestions to be made to customers on where to get certain products in the event that one outlet couldn’t fulfill their orders. Additionally shoppers can get the product shipped to their office or residence.

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