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 “The pricing on Alibaba’s bonds did not reflect a China risk premium
in our view, and was priced more like a US credit, given the solid
demand from the US investor base and hype around the IPO,” said
Raymond Lee, Sydney-based portfolio manager at Kapstream Capital,
one of Australia’s largest fixed-income managers.
Over the course of the 24-hour three-timezone bookbuilding, orders
topped at US$57bn before settling at close to US$55bn. US investors
anchored the trade by taking about three-quarters of the notes, two
sources familiar with the transaction said. The company hasn’t
disclosed the distribution statistics.
“It is a defining trade not just for the sheer size, but the fact
that it got priced against a peer group in a developed market,” said
a person familiar with the matter.
Alibaba bonds priced through some of the US blue chip tech giants
such as Amazon <AMZN.O> and eBay <EBAY.O>. Its US$1.5bn 7-year
tranche, priced at 115bp over Treasuries, came inside Amazon’s
2022s, quoted at a G-spread of 116bp. Its US$2.25bn 10-year, priced
at 128bp over, also easily pierced through eBay’s interpolated
curve.
“The company achieved the tight pricing as it was clear in
positioning away from China,” the person said.
In fact, Alibaba’s three- and five-year tranches were priced
30bp-35bp tight to Chinese search engine giant Baidu Inc and
40bp-50bp inside the country’s web portal and social media leader
Tencent Holdings.
Asian interest
Asian investors, whose orders exceeded US$11bn across the tranches,
were allocated a mere 15%-20% of the notes, the two sources said.
Asian investors generally found Alibaba bonds expensive as they have
many other Chinese credits that offer higher risk-adjusted premiums.
According to a research note published by Nomura yesterday, Chinese
credits typically pay a 20bp-50bp premium to their US peers due to
the “China Discount” driven by the headline risk of the country and
other technical factors.
“For the Asian credit market, the Alibaba bonds are rich although
they were priced fair for the US. Alibaba is a US credit (as it’s
listed in the US and trades on US technicals) and unfortunately it
will not provide the Asian market with a free-ride premium,” said
Owen Gallimore, Singapore-based head of credit strategy, Asia, for
ANZ.
For those reasons, a number of Asian investors didn’t play in
Alibaba. Instead, they bought Tencent and Baidu as they believed the
Alibaba curve would make them look cheap, a third person familiar
with the trade said. As expected, the Alibaba deal repriced the
Asian tech space as the curves for Tencent and Baidu have been
tightening since Thursday afternoon.
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Some funds also find better value in paper from similarly-rated
Chinese state-owned enterprises.
“We prefer to allocate our Chinese exposure to opportunities with
better relative value like China National Petroleum Corporation, a
AA rated government owned SOE, which priced their three year bonds
almost 40bp wider versus Alibaba,” Lee said.
The wholly state-owned oil major in China, rated Aa3/AA-/A+, priced
a US$500m three-year tranche at 107.5bp over Treasuries, compared to
Alibaba’s (A1/A+/A+) 70bp over.
Gallimore concurred: “Asian investors have more options to buy
higher-yielding paper such as the state-owned oil names in China and
proxy sovereign export-import bank.”
The US$8bn deal, to repay a syndicated loan of the same size, was
split into US$1bn 1.625% three-year fixed-rate notes at 70bp over
Treasuries; a US$300m three-year floater at 52bp over three-month
Libor; US$2.25bn of 2.5% five-year at 95bp over; US$1.5bn of 3.125%
seven-year at 115bp over; US$2.25bn 3.6% 10-year at 128bp over; and
US$700m 4.5% 20-year at a spread of 148bp.
The 20-year was a clear outperformer in the secondary market,
tightening more than 10bp in the Asia morning. The other tranches
were around par or a couple of basis points wider by early afternoon
in Asian hours.
Citigroup, Deutsche Bank, JP Morgan and Morgan Stanley were active
bookrunners, with Credit Suisse and Goldman Sachs as the passive
bookrunners. BNP Paribas, DBS, HSBC, ING, Mizuho Securities were
co-managers.
(Reporting by Lianting Tu, editing by Daniel Stanton.)
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