Why Alibaba Stock Was Riding Higher on Wednesday
Alibaba Group's stock rose nearly 3% on Wednesday, outperforming the S&P 500, following a successful $3.2 billion capital-raising through zero coupon convertible senior notes. The notes can convert into American depositary shares at an initial rate of 5.18 per $1,000 principal, maturing in 2032. Alibaba plans to use the funds for general corporate purposes, including enhancing its cloud infrastructure and international operations. Investors reacted positively, as the capital raise is not expected to significantly dilute existing shareholders or burden the balance sheet.
Chinese e-commerce giant Alibaba Group (BABA 2.24%) was standing tall on the stock market Wednesday. Fueled by a successful round of capital-raising, the company's U.S.-traded American depositary shares (ADSes) were rising by nearly 3% in late-session action. That was easily outpacing the S&P 500 index's gain of 0.2% at that point.
Billions of dollars in fresh capital
Alibaba announced that it has completed a roughly $3.2 billion flotation of zero coupon convertible senior notes. The purchasers were "certain non-U.S. persons," it did not identify.
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These securities can be converted into ADSes at an initial rate of nearly 5.18 per every $1,000 in principal amount of the notes. The notes mature in 2032 if not converted. Alibaba stressed that the conversion rate is subject to adjustment, under certain conditions.
At the initial rate, Alibaba wrote, the conversion price would be $193.15 per ADS. That's a more than 31% premium to the price of the company's Hong Kong-listed ordinary shares.
The company said it will use the amount it nets from the sales of the notes for "general corporate purposes." The two specific uses it mentioned were a bolstering of its cloud infrastructure and international operations.
Dilution? What dilution?
Investors liked the idea of Alibaba raising capital in this way because the note issue won't end up being too dilutive to existing shareholders, or present a huge additional burden to the balance sheet. The market cap of the ADSes currently tips the sales at almost $397 billion, while at the end of its latest-reported quarter its debt pile stood at 227 billion Hong Kong dollars ($32 billion).
