Why Do The Three Rating Agencies Favor Ali Bonds So Much?

Following IPO After financing $25 billion, Alibaba is ready to issue a total of $8 billion of corporate bonds. The world's largest e-commerce company is ready to sell high - level unsecured bonds to American investors, and $8 billion in corporate debt is the top five of this year's dollar corporate debt and the largest corporate debt in Asia's history.

The issuance of debt is also a miracle of China's stock market. The three international rating agencies have given Alibaba a rating equivalent to A+ (Standard & Poor's and Fitch gave A+ A1, different standards but similar). Apple Corp's corporate bonds are AA+ grade. Some countries with strong background, reputation and financial resources are rated AAA, such as the United States (down to AA+ in 2011). Before 2011, the rating of China's sovereign credit was A+, which is the same as that of Alibaba bonds. (after 2011, China's sovereign credit rating upgraded to AA-, and Alibaba bond was lower than China's sovereign credit rating). The rating of Korea and Israel's national bonds at Moodie was A1, and if credit is concerned, it is similar to Alibaba's bond rating.

Among the BAT three giants, there are only Alibaba Achieve this standard. Baidu and Tencent have corporate debt ratings of A3, two lower than Ali.

At the same time, the international rating of the three major ratings is higher, Alibaba can be proud of it.

Toni Tang, an analyst at standard & Poor's, thinks Alibaba accounts for 80% of China's market share and has higher profit margins and lower costs than its competitors. Despite the possibility of implementing large-scale acquisitions and capital expenditures, Alibaba will still maintain net cash position.

His concern for Alibaba is that the concentration of control is too concentrated. Chairman Ma Yun and 27 "partners" may have the composition and strategy of the board of directors of the company, but fortunately, the major shareholders of Softbank and YAHOO can balance the partnership structure of Alibaba. Sun Zhengyi and Meijer are not going to eat rice.

Moodie analyst Cai Hui analysis. Alibaba owns High visibility is the dominant position in China's rapidly growing e-commerce market. Alibaba's market and traffic costs are very low, so the profit is very high. Compared to the growth rate of 55%~60% two years ago, Moodie rated that even Alibaba's growth rate of around 45% was normal.

Moodie worries that there are two points besides Ali's massive takeover. There are two more points: Ali's extreme dependence on the Chinese market. Currently, 90% of its revenue comes from China. In addition, the associated company ants' gold suit needs extra funds to offset bad loans, because there is a certain risk for the ants to pay loans to Alibaba merchants and sell funds.

Issuing bonds does not mean that Alibaba is short of money. In fact, there are lots of money in the bank account of Alibaba. As of the end of the third quarter of 2014, Ali has 109 billion 911 million yuan in cash and equivalents, and is currently one of China Internet Corporation's most liquid capital companies.

The way of group cash is not the lowest cost. For example, Apple Corp, which has 159 billion dollars in cash, is more powerful than the United Kingdom, the United States, Canada, Germany, Italy, France and other countries. In 2013 and 2014, it issued 17 billion and 12 billion dollars of corporate bonds respectively. This is because most of Apple's cash or equivalents are kept overseas, and apple actually can't effectively use this part of the fund, because this part of the cash will be heavily taxed if it is returned to domestic shareholders.

Similarly, in the United States, and with major shareholders such as Softbank and YAHOO, the convenience and cost of using Alibaba are not low, and issuing bonds is a better way.

Alibaba chose to issue bonds at this point, because the cost of using funds is too low at present.

Before listing, in 2013, Alibaba had raised $8 billion to syndicate, mainly for buying, buying, buying, UC, Gao De and so on. The financing was divided into three batches: a group of 2 billion 500 million dollars three year loan, a group of 4 billion US dollars five year loan, and a group of 1 billion 500 million dollar three year revolving credit arrangements. Although you are the world's largest electricity supplier group, Ali's ability to bargain with bank loans is still very limited. What's more, the cost of this financing is not low when facing the consortium of 23 domestic and international big banks.

When the Alibaba was listed, the star effect of the world's capital was sought, and the performance of double eleven and 57 billion 100 million yuan showed that Alibaba's credit was not the same as before listing. Bonds are the pricing of risks, and credit is wealth itself. The growth of Alibaba credit is risk reduction and financing cost reduction.

Taking advantage of the current rating of sovereign credit, low cost financing, whether it is against future risks or for enterprise development, is cost-effective. If you have food in your hand, you can't panic in your heart. It is said that part of the bond financing needs to be paid in advance for the 2013 syndicated loan, which is indeed a good arrangement: further reducing the financing cost of the listing for the acquisition last year, and the cost of the bond is much lower than that of the loan.

What is the cost of bonds? At present, the average yield of corporate bonds in the us ten year AA is 3.10%, the average yield of corporate bonds in the ten year period is A, 3.34%. is five years old, and the commercial loan is 6.55%.

For investors, having these high quality corporate bonds is almost the same as cash and American Treasury bonds, but yields are much higher than the two, because the latter's income is close to zero. In these new bonds, the yield of ten - year bonds may be about 150 basis points, or 1.5 percentage points, over the same period of US Treasury bonds. The yield of seven - year bonds may be 135 basis points higher than the benchmark.

Owning such a good credit rating and bringing in such a cheap long-term fund, the less we use it, the more we lose. Because in the long run, the United States has entered a period of interest rate hike, and the Fed's interest rate is already in the firing line, and the cost of US dollar funds will become more and more expensive.

How will the money be used? Apart from replacing syndicated loans, Ma Yun said that it would invest more in the United States when it was listed, and that Alibaba is strengthening its international layout through fast selling and Taobao overseas. This year's double eleven small test knife, the next year, the internationalization of Alibaba will be even more obvious. The bond financing of the US dollar will also be partly internationalized in the future.