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Bloomberg

Alibaba Group Holding Ltd. is marketing its inaugural bond issue and may price the notes as soon as today, people with knowledge of the matter said.

Asia’s biggest Internet company plans to sell the debt in a seven-part offering and already has some $20 billion of orders from U.S. investors, the people said, asking not to be identified because the details are private. Alibaba plans to raise as much as $8 billion to repay a loan, other people said last week.

The transaction comes just two months after the Hangzhou, China-based company completed a record $25 billion public stock sale. Alibaba, which has $11 billion in loans and credit lines, will use proceeds from the bond sale to refinance some credit agreements, it said in a Nov. 13 statement. An $8 billion sale would eclipse a $6.5 billion issue last month by Bank of China Ltd. of additional Tier 1 securities, Asia’s biggest bond in the U.S. currency to date.

The notes will be rated A+, or the fifth highest investment-grade, by Standard & Poor’s and an equivalent A1 by Moody’s Investors Service.

The ratings “reflect Alibaba’s dominant position in China’s online shopping market,” Fitch Ratings Ltd., which also ranks the company at A+, said in a Nov. 13 note. “The ratings also benefit from Alibaba’s robust profitability and strong cash generation.”

Price Guidance

Alibaba is marketing three-year fixed-rate notes at about 80 basis points over similar maturity Treasuries, five-year debentures at about 110 basis points and seven-year securities at about 135 basis points. Ten- and 20-year bonds are being offered at about 150 basis points and 175 basis points respectively and the company is also selling three- and five- year floating-rate notes, the people familiar said.

The extra yield, or spread, investors demand to hold company bonds worldwide instead of government debt fell to 1.05 percentage points on June 20, the lowest in seven years, according to the Bank of America Merrill Lynch Global Corporate Index. Premiums were 1.22 percentage points Nov. 19.

The yield on notes sold by Beijing-based Baidu Inc., a Chinese search engine operator, in June jumped yesterday by the most in more than three months, according to prices compiled by Bloomberg. The $1 billion of 2.75 percent 2019 bonds fell to 99.861 cents on the dollar, the least since Oct. 6.

Tencent Yields

The yield on Tencent Holdings Ltd.’s $2 billion of 3.375 percent 2019 notes, sold in April, rose six basis points yesterday to 3.022 percent, the highest since Oct. 3.

Alibaba’s bond sale could raise as much as $10 billion, according to a Nomura Holdings Inc. note dated Nov. 20. China credits typically pay a premium of about 20 basis points to 50 basis points more than their U.S. peers, Anthony Leung, a Nomura credit research analyst in Hong Kong, said in the report. That’s “driven by the headline risk of the country” and other technical factors, he said.

For Alibaba however, that premium is expected to be smaller. “We note that better known names in the U.S., as well as non-state linked credits, enjoy a much smaller discount,” Leung wrote. “In addition to higher investor confidence, certain U.S. investors are sidelined from state-linked credits like the China oil majors and State Grid Corp. of China which often have businesses in U.S.-sanctioned countries.”

Conservative Structure

Morgan Stanley, Citigroup Inc., Deutsche Bank AG and JPMorgan Chase & Co. are helping to sell Alibaba’s debentures, the people said.

Alibaba will be able to maintain a conservative capital structure with a strong net cash position in the next few years, while it keeps its ratio of debt to cash flow below 1.5 times, according to Fitch.

Alibaba provides marketplaces for buyers and sellers, as well as services that help them conduct their businesses. Its stock has gained 60 percent since its September initial public offering, advancing to $108.82 yesterday.

The company is led by billionaire Chairman Jack Ma, who founded it from his apartment in 1999 with $60,000. Its main marketplaces include Taobao, which links individual buyers and sellers, and Tmall.com, which connects retailers and consumers. Earlier this month, during the Chinese company’s annual Singles’ Day promotion, Alibaba reaped a record 57.1 billion yuan ($9.3 billion) in online sales.