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- เผยแพร่เมื่อ 23 พ.ค. 2024
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Alibaba issued convertible notes to raise $4.5 billion.
But it just gave out US$4 billion of dividends and bought back $9.5 billion worth of shares in 2023. It has over US$600 billion in cash and short term investments.
It is not that Alibaba lack money. Why is it borrowing?
green dragon lets go!
Your BABA from 2021 till now still at red, already down 200k with margin call 👎 😂
Great Insight . THANK YOU
Alibaba fundamentally strong stocks that drop half half is good for long term,I believe alibaba can recover n go back 200, time n patience only, I’ll buy more💪🏻
Thanks for the explanation 👍
Good explanation. It seems ppl misunderstood it as dilution that's why the stock intially fell
Well explained
great insights
I thought only lower end company will resolve with financial engineering. They are just wasting time and not focusing on what a technology giant should do. Very disappointing.
Thank you very much for the video! I just suscribed to your channel. Do you know how to buy the convertible bonds from alibaba?
Think it was only offered to institutions.
Alibaba's convertible notes offer was already fully subscribed.. all USD4.5 billion of it plus the addition USD500million additional allotment bringing the total to USD5billion. Institutional investors think this is a good place to park their money.
where did u saw that?
Yes. Because note holders benefit from upside above 105 and no downside risk.
Alibaba's stock split was announced in March 2023, and it was supposed to split into six separate business units. However, why the stock split didn't happen as initially announced?
I have problems understanding this move, or probably I don't understand the convertible.
There are a total of $5 billion in notes sold, with the right to convert them at $105 per share. So in the worst-case scenario, Alibaba has to come up with 48 million shares. With the call options costing $500 million, it has $4.5 billion left to do so. So for Alibaba to be in the money on this, they need a price below $90. Now, if they buy these 48 million shares in the next 20 trading days (15% of daily volume), they have a good chance to lock in some profits, but that won't be the case. Instead, they are buying only 15 million shares now and the rest later. As they spend half a billion for $161 calls, while that price isn't exactly around the corner, later really means later, dilution will happen. It also leaves $3.3 billion on the table, and that has me confused. What will they do with it, and why do they need it? Pulling the elephant into the room, they aren't even allowed to touch and move 8% of their cash and equivalents?
BB gone case
If investors are confident in Alibaba, why not just buy the Baba shares today at $81?
Cos buying the notes have a low risk ride. In case share price doesn’t go up they don’t lose.
Because they are only 10% confident it will go above $`05. They get a free bet. If it does well they get paid. profit. If it does badly they get paid principal.
This deal is favorable to note holders not Alibaba.
For all its worth and all the Internet cheering on Alibaba...most of the time we take the market price to be fair value or close to it. It is stuck there for years ...if it is worth more surely smart investors will buy and stock shoots up. But that hasn't happened.
e time
it because there are uncertainty in stock market.
but those cb can guarantee ur principal also possibility of making a profit on the price difference.
Why are they not using its own cash in the balance sheet?
They have been buying back more than $10b worth of shares. Since there's cheap money, borrow and buy more. Also, they are pumping money to AI and international ecommerce for growth.
Something I didn't understand... If baba buys now shares because it thinks that are undervalue, but has to give them back when prices is above 103... they don't get a share surplus from the transaction, right? It would be just a loan. Because I guess they will give shares at current valuation even if price is above 103. (new to convertible notes). Thanks for the video.
So, if the stock is under 105$ in 2031, the investor of the note only makes 0,5% on their investment?
If the stock is between 105 and 161$, for example 150$, its like they bought the stock at 105$ and sold at 150$ (+ interest rate of 0,5%)
and if the stock is above 161$, for example 200, then the investor still only gets 161$?
I think your are wrong with capper call
Capped call options are a type of call option that has a set limit on the potential profit. This means that if the stock price rises above the predetermined strike price, the holder of the option will not benefit from the additional increase in the stock price.
Happy to be corrected. How does Alibaba benefit when price is below 161
@@DrWealthVideos the call is capped at $161. Once the share price goes above $161, no additional profit for the call. Otherwise , the call option will be too expensive
yes, baba bought 105 call and at the same time short 160, so if bond holders transfer their bond to shares when price is above 105, baba can use the call to call the additional shares in the market,so current share holders will not be diluted.
@@fff355 So, if the stock is under 105$ in 2031, the investor of the note only makes 0,5%.
If the stock is between 105 and 161$, for example 150$, its like they bought the stock at 105 and sold at 150 (+ interest rate of 0,5%)
and if the stock is above 161$, for example 200, then the investor still only gets 161$?
85 to 80 to 90 to 80. What a roller coaster if u are heavy in short term calls
I think it's a good move for BABA, it wants to show the investors there're institutional demands for their shares and they can borrow cheaply. Borrowing at a meagre 0.5% vs US cost of funds of 7-8%. Institutional investor expects the price for BABA to move, they can sell the bonds anytime when BABA price moves up, they dont need to hold till 2031. To me it's a marketing strategy. it's good. We retail investors can't move the needle. We need the Instituitions
the confusion around the convertible bond is a good opportunity to buy more shares because weak hands get out of the stock :). many investors don't understand that actually the convertible bond is a positive sign for the future stock price performance.
it really isnt, they promised to reduce shares with their cashpile, instead they borrow from investor x and give it to investor y, not really giving their profits to US investors
@@cccccuy ?? 😄 the coupon is 0,5% and we are in a high interest environment, therefore it's strategically intelligent to issue convertible bonds. additionally alibaba has tax benefits by issuing debt instruments rather than make use of its cash reserves.
or they could just issue shares directly at 0%. Now they pay a 0.5% penalty for an artificial delay of share issuance, plus half a billion fees. They only do this to claim that they bought back the promised amount, but that is wrong.
@@cccccuy ok, sell your stocks ..
You failed to emphasize that those counterparties think the stock is worth over 105 in 7 years! Thats less than 4% yield. Additionally, you failed to explain that the bond counts towards the total repurchase authorization, which given the high certainty of conversion, is now significantly less than promised. Finally, this suggest that it is very difficult for them to tap their china cash pile to reward us investors, which is the third reason for pessimism.
Do u have Alibaba stock?
Agree its a selll signal!!! Idiots are hyping u know the drill
You did not understand that the 4% yield is basically free and on borrowed money. If I could get a 4% yield on borrowed money for 0,5%, I would borrow as much money as possible. It's such a brilliant way. Reminds me in the borrowing from warren buffet in Japan.
@@seva9375Not if this means I give up 2% of my future cashflows. You conveniently forgot about the upcoming dilution part of the deal. They pay 0.5 because its a mix between a bond and a share issuance, Pure issuance would be ar 0%, even greater deal according to your logic
If Alibaba issues new shares to the bondholders subsequently, will current shareholders' stakes be diluted?
Only after the price of the stock is above $160 and Baba reserve the right to offer either stock or cash. So dilution is not a problem since the goal is to drive the stock higher.
they get diluted above 105. If in 7 years the price is still low, they dont convert, but baba has to cough up the principal. 160 is like a ceiling, not a floor.
@@cccccuy So, if the stock is under 105$ in 2031, the investor of the note only makes 0,5%.
If the stock is between 105 and 161$, for example 150$, its like they bought the stock at 105 and sold at 150 (+ interest rate of 0,5%)
and if the stock is above 161$, for example 200, then the investor still only gets 161$?
They did drills around Taiwan... Of Course the Hong Kong market would have negative sentiments after that. Not taking sides here, but I'm just saying that it would reflect negatively since geopolitical risk would increase because of that. They also did do those kind of drills around 2023 I believe... Anyway, things looked good last week, now they look bad again.
I also think the motive here is … hey large institutions… it’s safe to invest in us…. Look we’re cheap but we appreciate your scared…. So here’s a convertible bond for you to participate in the stock appreciation.
😂
The war chest could be used to finance CHGG takeover and get a leg up on AI educational segment.
It’s between 80-161
big money must think that Alibaba most likely >105 even higher otherwise won't buy those cb with 0.5%, we all know that fixed deposit ~5% nowday
Don't understand it in the end 😅
Better to have a dose of skepticism
it is called having your cake and eating it too
if only we can borrow at 0.5%!
But Alvin, what if Alibaba share price didn’t appreciate, bond holders will only get the miserably low coupon though principal is back. Isn’t this a bad deal?
Yes. Those who aren’t bullish Alibaba shares won’t buy the notes!
Wouldn't that a guarantee initial premium of 30% no matter the share price? @@DrWealthVideos
@@DrWealthVideosBut wouldn't they get a minimum of 30% premium no matter the share price when they convert after 2029 June. Which is like 5.5% annually.
Why pay 0.5% interest instead of just buy back shares if cash rich?
@@darkseris if alibaba's share was less than 105.04 at that time, then its investors would make less than 30% profit.
Was this necessary step to take? Baba investors are so tired....
Is it a good time to sell or buy Alibaba?
Buy. The stock buybacks will get aggressive so it means it will continue to rise. They set a goal to reach $160 by 2027.
Buy
Sell idiots are out you know the drill
Borrowing against forward cashflows to trigger SBB to lift stock prices & those very CBs convert back to shares @ premium
Famous trick used on Wall Street
This $105.04 will act as the max upside limit. Those who bought Alibaba last time higher than $105.04 are screwed.
Alibaba is not going to buy back share price higher than $105.04. They can just issue shares.
Tell me you have no idea what you're talking about without telling me you have have no idea what you are talking about. Jesus Christ.
"Alibaba is not going to buy back shares ...... They can just issue shares". This logic is brilliant, why buy back when you can just issue ...
Management believe their shares are undervalued but what is there to bring price above 100 ?
Share buybacks. Fundamental improvements.
Why borrow to do share buybacks when they are cash rich?
Will u borrow if you can borrow at 0.5%?
@@DrWealthVideos no, why would i when i have so much cash on hand? Unless the spare cash is generating 4-5% stable returns then yes perhaps. But this is dilutive to shareholders once its converted
@@SK-qj3oj borrow at 0,5% and invest at 5% is free money. Also, they will do both. And another also, they can't use all their cash for buybacks because of restrictions.
please share all your free documents thanks
As a bagholder, they should focus on operating their business, not this financial engineering crap. Especially cloud.
Once the share price rises above $161, Alibaba has no additional benefits
Provided if it did go to $161 at all. Alibaba is in a very competitive market, margins are low, their management should just focus on cloud and A.I.
Isn't it capped on 161$? Meaning if it goes above 161$ Alibaba only has to pay back 161$ anyway (in the form of shares)
Not good at all. 30% premium in 7 years is worse than UST. 🤦♂️
AI chips
This explanation is not complete. Should Alibaba go out and buy stock with the money at. $ 80. And business and economic conditions deteriorate the stock goes to $40, the note holders will still be paid in full. ...and Alibaba lost heavily betting on the share buyback.
The note holders essentially get a free call option at $105. They lose nothing if Alibaba's business goes downhill.
The deal is not favorable for Alibaba at all. It only looks like a good deal if one has a optimistic bias of Alibaba's business.
Would you buy the note then? Since you imply the note is disadvantageous to Alibaba
If the stock goes to $40, Alibaba has enough cash to buy the whole company in just a couple of years. In other words not possible.
@@walden6272 The real question here is, can they really tap on the cash in the company?
@walden6272 when the business conditions turn bad it would have to use up its cash to make up for operating loss and regain market share. Investors who have been bullish about Alibaba for so long as the stock falls fail to see the pitfalls of its business models and how external conditions can change to undermine its current valuation. I would stay away
@@seeker9912 The business model for Alibaba makes it hard to have operational loss since it actually doesn't own those inventories. It's simply a platform that collects fees and advertisements from companies that sells on its platforms. That is why it has lots of cash.
Why? Becos there are plenty of dummies shareholders out there.
Yes. You are the smartest
Oh, that annoying accent again
Imagine if they ised the 70 bil in cash to buy btc or nvdia.... The point is that 70 bil cash is not a good asset. Until they know how to invest that 70 BILLION in vash the stock will stay below $80. Simple