Finance

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

(Updated )

Is there such a thing as too much cash? Not for a Chinese company like Alibaba, which raised $8 billion in a coveted loan deal two years ago, followed by a record $25 billion from its New York IPO.

The company is tapping banks again for at least $3 billion in one of the biggest borrowings this year by an Asian company, second only to the $50 billion loan ChemChina is taking out for its purchase of Switzerland's Syngenta, in the nation's biggest overseas deal.

The e-commerce giant says the latest fundraising is for general corporate purposes, while a person familiar with the matter said the money would go toward M&A. There's no doubt that acquisitions in every part of China's consumer market have been Alibaba's goal in the last couple of years.

Yet investments -- from movie producers to, most recently, a possible stake in the financial publisher Caixin -- have barely made a dent in Alibaba's cash hoard. The company had $18.6 billion in cash, equivalents and short-term investments at the end of last year. That sum exceeded current liabilities by 3.18 to one, a higher ratio than any big international e-commerce player.

Cashed Up
Alibaba's cash ratio exceeds global peers as funding continues
Source: Bloomberg data; Data is for cash ratio (cash, equivalents & ST investments/current liabilities) of e-commerce players with $5b in 12 month revenue

Alibaba has made $34.5 billion in acquisitions, a lot more than its Chinese tech rivals. (Tencent does more deals, but they're generally smaller.) Founder Jack Ma's biggest purchase, after the $7 billion acquisition four years ago of a stake in itself from Yahoo, was the $5.1 billion buyout late last year of Youku Tudou, a Chinese online video provider.

Unless Alibaba is planning a bid for a really big Chinese company -- Xiaomi, for example, was valued at $45 billion in its last fundraising -- it may be that the latest loan is a case of banks desperate for good clients in a world of super-low interest rates. Loan volumes in Asia, while down last year, remain well above levels reached before the financial crisis.

Billions of Dollars of Borrowing
Asia Pacific ex-Japan loan volumes have exceeded pre-financial crisis lending in recent years ($)
Source: Bloomberg
Footnote: Completed deals (syndication usually takes a couple of months)

Alibaba is getting the five-year financing from eight banks at 110 basis points above the London interbank offered rate. The $8 billion borrowing in 2014, when rates were higher, was at 1.2 percentage points over Libor -- and saw what was then an Asian record of 22 banks piling in. Alibaba's borrowing is cheaper than, for example, a $300 million, five-year loan that Lenovo took out last year at 1.65 percentage points over Libor, according to data compiled by Bloomberg, and similar to a $1.23 billlion loan to Tencent, a rival, in December.

It's not as if there's a risk of Alibaba's funds drying up. The company's payments affiliate Ant Financial, controlled by Ma, is preparing for a domestic IPO that could raise billions of dollars and is in the middle of another $3 billion fundraising, according to the Wall Street Journal. With around one-third of Ant, Alibaba may be in line for a windfall.

 

Rising Cash
Alibaba's cash pile has doubled in the past two years
Source: Bloomberg data; includes cash, equivalents and short-term investments

While borrowings, and cash, have risen steadily since Alibaba's 2014 IPO, the stock hasn't. After a brief climb toward $120, it plunged to just below $60 before a rollercoaster ride that left a 13 percent decline in the past 12 months, underperforming U.S.-traded Chinese peers.

There's no doubt that some of the funds Alibaba is raising will be spent on companies that Ma feels best serve China's digital-savvy consumers. The latest exercise, though, feels like a case of easy money finding a home.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

(Adds stock history in second-last paragraph.)

To contact the authors of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net