Financing Alibaba's Buyout: Syndicated Loan in Asia

Description

Alibaba is the world’s largest online trading platform, with higher revenues than Amazon and eBay combined. Its 2012 syndicated loan was the first sizable loan for a Chinese technology company with few tangible assets. Creative loan covenants stated that the subsidiaries would repatriate 100 per cent of the distributable profits for debt service. The loan was partially used for the buyback of Yahoo!’s stake in Alibaba. In the agreement, Yahoo! would sell half of its stake back to Alibaba immediately and an additional 10 per cent during Alibaba’s IPO in the next few years, and divest the remainder sometime after that. Now, Alibaba thinks it is time to tap the debt market in order to pay off the $4 billion in loans it received in 2012 and to finish the payments owed to Yahoo! for the stock repurchase.

Learning Objective

This case is designed for a course in corporate finance on the topic of raising funds via syndicated loans. It also allows instructors to discuss the issues of capital structure and the right structure of a loan as preparation for a potential initial public offering (IPO). Additionally, it can be used in portfolio management or fixed income courses that deal with the topic of pricing loans. The case also allows for a discussion of emerging markets (in particular, China). Alternatively, the case could be used in a module on corporate strategy that focuses on strategic financing choices and in a module on international finance.

Keywords

China credit markets debt financing Financial strategy Internet