East beats West
It is rare for rival bankers to praise a peer’s deal, especially in public, but the Asian debt capital markets community was in agreement that the Asia bond of the year is Alibaba Group’s US$8bn blockbuster debut issue.
Just two months after successfully pricing the largest initial public offering in history, on November 13, the US-listed e-commerce giant announced its intention to offer 144A/Reg S senior unsecured notes. Riding on its momentum, roadshows began three days later and involved meetings with over 300 investors around the world.
The result was a landmark six-tranche US$8bn offering that received a blowout US$55bn in orders and allowed the company to avoid paying the premium typical for Chinese companies. Alibaba achieved its goal of pricing like a US technology company rather than in line with its Chinese peers.
The US was the biggest investor region for each tranche, with bankers involved saying that the credit struck some Asian investors as expensive, as they were used to high premiums from Chinese issuers.
Nonetheless, the transaction only needed 90 minutes to reach full subscription. It was the second largest order book of all time, only behind Verizon’s gargantuan offer in 2013 – an impressive achievement for any company, let alone a first-time issuer.
The bond was the largest debut international offering of all time and Asia’s largest-ever bond transaction, attracting over 1,000 investors across tranches.
At final pricing, all tranches had tightened substantially from as much as 27bp for the 20-year tranche to 10bp for the three-year tranches, with the bonds tightening further in secondary markets initially.
The three-year fixed tranche was priced at 1.625%, which was 70bp over US Treasuries but around 40bp inside state-owned China National Petroleum Corp, which had issued bonds only two days prior to Alibaba, a private-sector company.
Not only did Alibaba’s bonds price inside comparable Chinese credits, they were also competitive against US blue chips.
Its tranches were mostly 35bp–50bp inside other large Chinese tech companies, such as Baidu and Tencent, but perhaps most striking was the seven-year tranche pricing inside Amazon’s 2022s and the 10-year pricing easily inside eBay’s interpolated curve.
Active bookrunners were Morgan Stanley, Citigroup, Deutsche Bank and JP Morgan. Credit Suisse and Goldman Sachs were passive bookrunners, while BNP Paribas, DBS, HSBC, ING and Mizuho Securities were co-managers.
The deal will be remembered not only as an impressive feat of pricing and execution, but also as a historically important bond in the development of China’s growing debt capital markets presence.
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