Alibaba to raise US$3.17 billion for cloud and AI buildout

Chinese tech firms are trying to raise cash as the fight for market share in AI heats up, and Alibaba is taking the lead.

The e-commerce giant is seeking about US$3.17 billion through the sale of zero-coupon convertible notes, a deal set to be the largest of its kind this year. The notes, due in 2032, will convert into the company’s American depositary receipts, according to terms reviewed by Bloomberg News.

Orders have already covered the full amount, people familiar with the deal said. The strong demand shows that investors are still willing to back China’s biggest firms despite a tougher economic climate. Alibaba had declined to comment at the time of writing.

The rush for funding reflects how much pressure China’s tech giants are under as they spend heavily on cloud computing, AI, and food delivery. Baidu raised 4.4 billion yuan (US$618 million) this week from a dim sum bond sale, following a 10 billion yuan issue in March. Tencent is weighing its first offshore yuan bond sale in four years, while Meituan is also looking at a possible dim sum bond offering. These moves point to a wave of capital-raising that mirrors the scale of the companies’ ambitions.

Alibaba’s fundraising is tied to building more data centres and expanding its international commerce operations. Earlier this year, the Hangzhou-based firm said it planned to spend US$53 billion over three years on AI-related infrastructure. That figure places Alibaba among the world’s biggest investors in digital infrastructure, putting it in closer competition with global peers like Amazon and Microsoft.

“Alibaba is playing a long game – raising cheap capital, hedging dilution, and doubling down on growth,” said Ravi Wong, first vice president at Yan Yun Family Office (HK). “It’s worth watching how these investments translate into revenue acceleration.”

At home, Alibaba faces intense competition for shoppers from Meituan and JD.com. Just this week, it pledged another 1 billion yuan in incentives to drive traffic to one of its most popular online platforms. Its effort shows how the battle for market share in China’s consumer economy remains fierce even as Alibaba or other companies spend big on AI.

The push to raise capital also highlights how the global race in AI is spilling into different industries. Taiwan Semiconductor Manufacturing Co. (TSMC), a supplier to Nvidia, reported strong sales in August, Oracle has issued an upbeat outlook for its cloud business, and Broadcom’s shares surged after it secured an order worth more than US$10 billion from OpenAI. For Alibaba, these events underline how competition in AI extends beyond China’s borders.

Some analysts caution that expectations on China’s cloud companies may be too high. “Optimism that rising AI demand will lead to meaningful earnings upside at China’s cloud computing companies remains misplaced,” said Robert Lea of Bloomberg Intelligence. “We expect the price war and surging energy costs to keep China’s fragmented cloud sector in the red for the next three years.”

Convertible bonds, which allow holders to turn debt into equity, have become a favoured fundraising tool in Asia this year. Such securities are cheaper than traditional bonds at a time of high interest rates and are especially attractive when stock prices are rising. For companies like Alibaba, they also offer flexibility: investors can benefit if shares keep climbing, while the company avoids taking on heavier interest expenses.

For Alibaba, this is not new ground – it raised US$5 billion in convertible bonds last year, a record deal for an Asian company, and in July tapped investors again with HK$12 billion in exchangeable bonds tied to its healthcare unit. The latest notes carry a conversion premium of 27.5% to 32.5% and include a 90-day lock-up period.

Even with the latest round of fundraising, Alibaba’s shares have slipped during trading. Its stock in Hong Kong fell as much as 2.6% on Thursday to HK$139.10 after its US-listed shares also dropped. Yet its stock price has gained about 70% this year, showing that investor confidence in both Alibaba and its AI strategy remains strong.

The deal is also a windfall for banks. Barclays, Citigroup, HSBC, JPMorgan, Morgan Stanley, and UBS are working on the offering, joined by BNP Paribas, Deutsche Bank, and Mizuho Securities, according to the deal terms. For banks, the surge in Asian convertible bond sales has become an important source of fees at a time when other parts of the capital markets remain subdued.

(Photo by Vladimir Solomianyi)

See also: Alibaba unveils research on tools to cut outages and cloud costs

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