To The Moon

$Alibaba(BABA)$ In considering the issuing $5 billion in convertible bonds; not coincidentally, a few days ago Jingdong announced its intention to offer an aggregate principal amount of $1.5 billion in 5-year convertible senior notes

The company intends to use the money for buybacks, as well as to develop its overseas business. $Alibaba Group Holding Limited(BABAF)$

Investment Highlights

1. Despite the drop in free cash flow, Alibaba still isn't short of money. But that doesn't mean it has enough dollars overseas. Therefore, in the current high dollar interest rate environment, it is very reasonable and normal operation to find relatively low cost convertible bonds. At the same time, the frictional costs of converting domestic book profits out of the country to make dividends or buybacks, with frictional costs such as taxes of around 30%, are also costly.

2. Ali intends to use the money for buybacks, as well as to develop its overseas business, all in line with its current strategy of rewarding shareholders and developing the fastest-growing overseas e-commerce business.

3. The previous BOE transferable issue was very highly subscribed and investors were enthusiastic, and the market is still enthusiastic about plowing into Chinese stocks.

4. The core logic of China's overseas assets is still fundamentals and valuation, convertible bond issue does not constitute an operational or valuation impact, no need to over-interpretation, cheap is the hard truth.

5. Compared to take the profit buyback (the most real) this is certainly not simple, and then if the model is modeled after the United States, low-interest borrowing money from the bank to buy back shares, unless the final bank debt to equity, or in the end, or to pay back the bank, this is cynical.

6. Unlike ordinary convertible bonds, the company also bought call options in the form of Capped-Call-Options, setting a cap of 100% increase in the share price after 7 years, with a royalty of $570 million;

   1. A capped call option is a special form of call option that sets a cap on the amount of profit to be made; when the price of the underlying asset (e.g., a stock) rises to the pre-set cap price, the option is automatically executed.

   2. Meaning the company has a moderately bullish expectation for its own stock price, and in the case of Ali, the company expects it to at least double in 7 years.

      Advantages of Capped Call Options - Call Option: Capped Call Options for Bullish Market Expectations