Alibaba Attempts To Sell $8 Billion In Stocks To Pay Down Credit Lines

Alibaba (BABA: U.S.) made a huge splash with their initial public offering. Now, Alibaba will try to improve their already stellar bottom line.

Forbes is reporting that Alibaba is set to have its first bond sale in the United States. The goal is for the bond sale to raise $8 billion in funds, which Alibaba will then use to pay down some of their debt, lowering their debt rate and strengthening their bottom line. Given how popular and successful Alibaba’s initial public offering was back in September, this goal seems quite attainable.

The main reasons for the optimism is that Alibaba’s latest earnings report was spectacular, highlighted by their Single’s Day selling event, which garnered more than $9.3 million. Alibaba stock then clocked in at $120 per share. However, there are some concerns about this. The three main concerns are Alibaba’s dependence on a weakened Chinese market, which makes up 90 percent of their business, their acquisition strategy, which could prove harmful to its balance sheet and weaken both, and Alipay, which might need an infusion of funds to continue operating independently of Alibaba’s business.

Even with those possible stumbling blocks, Moody’s, Standard and Poor’s and Fitch Ratings feel strongly enough about the upside of the bond sale that each have rated Alibaba stock A+ (Moody listed them A1) due to Alibaba’s established name and how quickly the startup came to dominate China’s fast-rising e-commerce empire.

Bloomberg is reporting that as it stands, Alibaba holds $11 billion in loans and credit lines on top of the $25 billion acquired in the IPO. All told, Alibaba holds about $300 billion in market capitalization.

“Given that they just had their IPO, they don’t necessarily need to come to market,” Nathan Barnard, a fixed-income analyst at Portland, Oregon-based Leader Capital Corp., said in a telephone interview. “They’re pretty flush with capital. It’s another example of companies being opportunistic and trying to take advantage of low rates while they can.”

If Alibaba can pull this off, they will surpass the Bank Of China’s tier 1 bond sale of $6.5 billion in U.S. dollars last month in Asia.

According to a person with knowledge of the situation who lacked authorization to speak publicly and asked not to be identified, said the debt would be marketed to potential investors by four different firms, Morgan Stanley, Citigroup Inc, Deutsche Bank AG, and JP Morgan Chase & Co.

With the success Alibaba has had in the stock market, expect this to continue.

[Image courtesy of Lemon de Numerique]