My Problem With Alibaba's $5 Billion Raise
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- Опубликовано: 8 сен 2024
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This is a great thing, just needs to be done more. They buy shares for $80 and issue fewer shares at $105. Love it!
So the note holder can convert at expiration date but only to a max of 161$?
If the stock is 200, they still only get 161$?
@@maxjames00077 The interest is based on the bond value and the cap caps the interest Alibaba pays. So if the price is $200/share and I hold a bond worth 200 shares, Alibaba still only pays me $161*0.5%*200 shares. The bondholder almost always converts the bond since they get 200 shares valued at $200/share.
From $7K to $45K that's the minimum range of profit return every week I thinks it's not a bad one for me
I agree just reached my goal of $100k monthly trade earnings. Setting realistic goals is an essential part of trading
Please educate me, i'm willing to make consultations to improve my situation
Get yourself someone like Stacey Macken who understands the market very well and is also a professional in placing trades. That's the key
she's mostly active on Facebook
Stacey Macken That's her Handle
They did it to get around cash leaving China. They raised the 5 billion outside of China to buy back ADR slips outside of China. Smart move by Baba and JD.
it’s for david beckham’s salary
I think the $5bil is to make sure that they will not over exposed themselves if Baba share price rallied before they even buy back all the shares at $80/share. It is a prudent move, in my opinion.
Sharp! Definitely would be a problem if the price would have rallied too much before they could buy back.
From my observation and historical market pattern, there might be a bit of turbulence in the market coming up, but here's the deal: Trying to guess what's going to happen next is less important than spreading your bets when trading and thinking long term. It's not about guessing the market's next move; it's about playing it smart and steady...managed to grow a nest egg of around 100k to a decent 732k in the space of a few months... I'm especially grateful to Linda Wilburn, whose deep expertise and traditional trading acumen have been invaluable in this challenging, ever-evolving financial landscape.
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As a BABA shareholder, I'm confused by the recent $5 billion convertible bond issuance. Here are my questions:
1. Why did BABA issue a $4 billion dividend simultaneously if using mainland money for buybacks is challenging? Could the dividend have been used for share buybacks instead?
2. Why wait for the August Hong Kong IPO when BABA can use RMB buybacks then?
There might be some misunderstanding in the comment section about the conversion, the options cap, and what it means for dilution. The conversion is around 9 shares per $1,000 in notes, or $105 per share. This conversion is fixed, which means that even if the price goes to $161, Alibaba still has to give the note holders 9 shares for their $1,000, which is a loss of $56 per share for Alibaba if it still has to buy the shares in the open market at $161. As they stated that they will only buy 15 million shares now, while in a worst-case scenario, it will need 48 million shares (net convertible proceeds / $105), there is a dilution exposure of 33 million shares multiplied by $56 per share, or $1.8 billion. Now, in case the price goes to $162, Alibaba agreed with the note holders that, from there on, it has the right to buy back the shares it owes for $161, which is the option call cap that cancels out all further upside for the note holders. The cap didn't come cheap, with a $500 million cost. Bottom line, $56 per share is the maximum profit for the note holders (+ interests) and the maximum exposure for Alibaba for every share they didn't buy when $161 is reached. If they choose to issue new shares, it will lower earnings per share, eventually resulting in the same dilution. Alibaba is making a two-step forward and one-step backward move, and with supposedly + $60 billion in net assets, it's a move I simply don't understand.
Fgos, the market wasn't negative on the move, so clearly I'm wrong, but I don't find the right answers, nobody is showing the full picture. For example, in the tweet of thexcapitalist, you don't park the cash if you expect the stock to go up, that doesn't make sense. You would only park it if you expect the shares to go down or if you actually need the money for other things. Anyway, If anybody cares to educate me, I'd love to learn.
@Mr Keng, keep up the good work, I really enjoy your videos.
@@beatendownstocks
They buy the shares back at 80$ and got paid 105$ for them.
Of course they wouldn't take this deal if they don't profit from it.
It's like this:
baba now got 4,5 bn and pay only 0,5% interest ( so almost free money).
but the underlying notes got sold for 105$ per share. meaning that:
1- If the stock is below 105 at expiration date, they get their principal back + interest.
2- If the stock is between 105 and 161, they convert to stock.
3- If the stock is above 161, the will only get 161, which is the cap.
In any of these 3 scenarios baba wins,
If the stock is at 100$ a share in 2031, we basically got a loan for 0,5% yearly, thats free money man which they invest better.
if the share is between 105 and 161, we bought back shares at 80 (which is what baba paid for them this week) and got 105$ for them.. (this is hard to understand but if the stock hits 106, the note holder makes 1$ because they paid 105. But right now the stock is 80... so Alibaba bought the stock at 80 and gives a share back at 106, which means buy back a share low and dilute a share higher (which is what u want a company to do) (remember diluting a share is free and because we got paid 105$ per share out profit is 25$ per share).
In scenario 3 we make even more profit. same principle but with more money because the note holder only gets 161 and we keep the 105 - 80 profit (25) + everything above 161 as well.
its like a long term call option, if you get the "strike" price you convert the bonds with a profit (at least 30%), else you get your principal back and your cost was inflation (because 0.5% annually means losing some % to inflation, optimistically inflation will be 3% over the next couple years, so your cost if 2.5% annually)
Come on. BABA's primary business is in China. They can't pull out billions of dollars from China overseas, as the Chinese government regulates US dollar inventory for financial stability. This applies to all Chinese companies. I thought you should know this already. The convertible bond move was smart and actually the bond holders are stuck with their money into this financial instrument, unless the share price increase substantially to the strike price of the bond term.
I currently own a lot of baba shares, and I am happy they issue CB cos their strike piece is higher than mine.. mine is around $95.
They issued 5b is already one of the largest in Asia, I guess they prefer the CB to be oversubscribed then under subscribed which will be bad for sentiments on its shares.
Baba shareholders all forget that there only 1 shareholder in BABA under the special company charter which is jack ma, rest are all bondholders.
Maybe they should manufacture something with their RMB and sell those items outside of China to raise foreign currency. Maybe that's how Apple gets money out. Borrowing foreign currency is a temporary fix.
it is positive....no need to worry
If I am not wrong Alibaba is already paying a 1.3% yield on equity which is higher than the coupon rate. If you want to take a bet, equity is more attractive than the bond given the price had fallen below HKD 73. I see no cow sense unless you want the safety of higher hierarchy of claim. Then again if you find the company in risk of a default, a 0.5% coupon doesn’t compensate the risk taken. A fair range for pure vanilla Chinese issue bond for 7 years should be around 7-9% annually minimum. 2c worth, dyodd 🙏. Lone Wolf Investor.
I prefer the new management approach to unlocking value with buybacks instead of spinoffs. Their logistics and cloud have strong synergy with core
So if they use the 5 billion to buy back shares then the stock rises 30 percent they have to issue shares seems like a good deal no?
Rethink it. The CB lenders (major institutions) have a major interest in the stock price being over 160. Are they allowed to promote the stock if they are holders?
They were already shareholders, so I doubt convertible bonds are that much different.
As i'm understanding it they have no interest in the stock being over 161$, since that's where the cap is.
If the stock is below 105 at expiration date, they get their principal back + interest.
If the stock is between 105 and 161, they convert to stock.
If the stock is above 161, the will only get 161, which is the cap
This is one main reason why I don't like to invest in China. Companies make profit but can't freely reward the FCF back to the shareholder without approval from CCP.
They have done 10s of billions in buybacks with their cash though. It's not like these companies can't use anything.
@maxjames00077 The fact that BABA has to resort to such means to increase the amount of buyback is a red flag. It means that those earnings will only be partially rewarded to shareholders. It also explain why BABA hordes so much FCF in the past. How sure are you that CCP will not intervene to prevent this workaround?
Great video! Could you share more about how to buy cb ?
The interest being so high is very bullish. This bond reduces the risk in an investment that many institutions were undecided on because of political risk. The bond holders still get the upside with much less risk of being wiped out by some black swan event. I would have bought the bonds myself if I had access.
Love your vid bro… just one complaint, Can you Press the præsentation button at the bottom of the powerpoint in the next video? But great info keep it up💪
Totally NOT INTERESTED and frustrated with all these they are doing which complicates matters n messes up the share price ! They just bought back 5 billion shares n issuing 5 billion of cb !
Look at the conversion rate. If it converts we will all have made good momey
At the same time though it’s really cheap money. I’m glad they still have access to cheap money in this interest rate environment. Same reason META’s bond issuance was good, getting a good rate on extra cash before rates went up.
Meta's stk prc is not in the doldrums. Its not like alibaba has no cash, they have lots, why do they have to do this now. Most likely planned even b4 they bought back the shares.
@@user-me2ev5gk9f the way it was explained they can’t use that cash they have in mainland China to buy back ADR etc. but they can use the cash from this offering to do so.
Alibaba has enough cash, but can only repurchase shares to a limited extend due to chinese currency restrictions.. money can‘t simply leave the country. Hence, such USD denominated bonds can help Baba get the USD it needs to increase buybacks.
Can they buyback shares in hk via the stock connect in september?
What’s so negative about 5B? It’s a very good move i feel, Tesla paid 2.375coupons for their CB they raised like a few hundred mil only
Maybe they simply did not find buyers for more than 5 billion at .5% interest?
Did you watch the video? He said that the bond was oversigned multiple times because interest was so high.
@@TheScaryGermanGuy I must have spaced out, thanks for clarifying
To your point at why stop at $5 Billion? Maybe they were testing the waters. Perhaps they will issue another one next quarter…
The bond is more attractive than owning the share
thanks for the detailed analysis.
They may start issuing 5b for the next 4-5 quarters
JD deal is far better than Alibaba because they issued 5yr convertible bonds not 7 years..
Can Chinese companies use RMB to pay back debt in other currencies?
I dont think you are NOT getting a crazy good valuation. DBS shares at $5 during Asian Crisis....that is a crazy good valuation. With u get a risky situation which some investors prefer not to take.
did you see how much share they bought back in a day with this CB?
They were probably only offered 5b at such a great position so why not take it
No interest on the CB, the arrangement seems very strange at the very small $5B
So how and where to buy the CB?
Hi Chi Keng, do you see baba coming to $100 anytime soon? Thanks.
Not in your lifetime.
They issued to bond to crash the share price again so they can buy back cheaper. 🙂
Can you do a video on PDD?
who's more bullish on tencent than alibaba ?
CK , why your eyebrows one is high , one is low. 😅😅😅❤❤
Alibaba CB😳😳😳
Bb CB😂
Alibaba's CB got me lol-ing
Their CB damn smelly