Markets

Marcus Ashworth is a Bloomberg Gadfly columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.

Alibaba Group Holdings Ltd. is setting up to launch another mega-sized slab of bonds, and could raise about $5-7 billion, Bloomberg News reported.  

The timing's good, and the company could well think about raising even more. It just raked in $25.3 billion in sales for Singles' Day, its biggest shopping event of the year. Index-tracking bond funds should be keen to get exposure to a A+ rated credit, whose $477 billion market capitalization makes this debt issue look decidedly modest in comparison.

Room To Extend
Alibaba's existing debt is quite short-term so extending maturities makes sense
Source: Bloomberg

Of course, this is very much a U.S. play. Liquidity in dollar corporate credit market remains significantly higher than in euros, where investors are deterred from the much lower underlying yields.

True, there may need to be a healthy new issue premium to ensure a bumper order book. Credit spreads had a tough time last week after being on an extended tightening run. Some $47 billion of investment-grade corporate bonds were issued, causing no small amount of indigestion and pushing spreads wider.

Much Narrower
The broader tightening in credit spreads means Alibaba would most likely issue at a smaller premium than at its two previous debt launches
Source: Bloomberg

But the broader tightening in spreads means the premium over U.S. Treasuries Alibaba pays will most likely be smaller than when the company last issued.

Marching In
Alibaba's longest bond, which it issued in 2015, has tightened in from its initial launch spread of 148 bps

Leaving something on the table for investors may be the smart move if the company wants to become a repeat issuer, as would make sense in funding its growth ambitions.

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

To contact the author of this story:
Marcus Ashworth in London at mashworth4@bloomberg.net

To contact the editor responsible for this story:
Jennifer Ryan at jryan13@bloomberg.net