US$8b in sight for Alibaba buy-back

PUBLISHED : Wednesday, 01 August, 2012, 12:00am
UPDATED : Wednesday, 15 August, 2012, 10:46pm

E-commerce giant Alibaba Group is close to sewing up more than US$8 billion in financing to buy back half of the 40 per cent stake in the mainland company that Yahoo owns, a person in Hong Kong familiar with the funding initiative said.

Hangzhou, Zhejiang-based Alibaba will use about US$7.1 billion of that new capital for an initial repurchase of 20 per cent of the company held by Yahoo. The two parties reached an agreement in May for Alibaba to buy back in stages all the shares Yahoo acquired in 2005 for US$1 billion.

Yahoo chief financial officer Timothy Morse said last month that Alibaba's financing efforts were 'well on track' and the closing date of the initial share buy-back 'should be within the six months that we've previously communicated [on May 20]'.

A New York Times report yesterday citing 'people briefed on the matter' said Alibaba's financing round included a US$1.5 billion sale of convertible preferred shares, based on a US$43 billion equity valuation for the company, and the sale of US$2.6 billion in common shares, at a roughly US$35 billion valuation.

The report also said Alibaba was close to completing arrangements for US$4 billion in new borrowing from a small group of lenders.

The Hong Kong source familiar with the funding effort confirmed nearly a dozen international investors - including hedge funds, sovereign wealth funds, mutual funds and private equity firms - were involved in buying the preferred shares.

Alibaba chairman and chief executive Jack Ma Yun said in June that the company was looking at sovereign wealth funds to help finance its share buy-back deal with Yahoo.

The South China Morning Post reported last month that China Investment Corp (CIC), the sovereign wealth fund that manages part of the mainland's huge foreign exchange reserves, was considering a major investment in Alibaba. The Times reported that Beijing-based CIC would provide 'a substantial portion' of the loan to Alibaba.

The share buy-back deal with Yahoo included a couple of incentives that might make it attractive for Alibaba's management to consider an initial public offering by 2015, the source said.

One incentive is that Alibaba's right to repurchase the third remaining tranche, or 10 per cent, of Yahoo's shares in the company would expire in December 2015. Another incentive is that certain licensing payments to Yahoo would stop when Alibaba went public.

Alibaba has more than 25,000 employees worldwide and seven subsidiaries. These are business-to-business trading portal operators International Business and the Chinese-language Small Business; consumer-to-consumer online shopping subsidiary Taobao Marketplace, business-to-consumer retail platform TMall, shopping search engine provider eTao, group buying site Juhuasuan, and Alibaba Cloud Computing, its information technology services unit.

Leading domestic online payment service provider Alipay is majority owned by Ma and is an affiliate of Alibaba.