Alibaba is raising $3.2 billion through a zero-coupon convertible bond

Alibaba just threw $3.2 billion into the game with a new zero-coupon convertible bond that matures in 2032. The company made the announcement on Thursday, confirming that the cash will mainly go into cloud infrastructure upgrades and international growth.

According to Dealogic, this is now the biggest convertible bond deal of the year, smashing DoorDash’s $2.75 billion deal from May.

About 80% of the funds will be used to expand data centers, improve technology, and boost cloud services to meet rising demand. The rest of the money? That’ll go into improving how the company runs its e-commerce operations and making its market presence stronger.

The bond will convert into U.S.-listed shares and carries a 27.5% to 32.5% premium on Alibaba’s current U.S. stock price. It’s a zero-coupon structure, which means no interest will be paid out during its lifetime, it just flips into stock if exercised.

Alibaba’s bond matures on September 15, 2032, and offers investors an option to convert to equity. That’s a long bet, but one that clearly lines up with how the company sees its cloud business and AI projects unfolding.

Alibaba bets heavy on AI, stock swings follow deal

Alibaba raised $1.5 billion in July via an exchangeable bond and $5 billion in May last year through a convertible bond. But this $3.2 billion hit is more targeted, because it’s all about scaling its cloud dominance and funding overseas growth at a time when everyone is watching where Chinese tech giants move next.

CEO Eddie Wu said in the company’s last earnings call: “Our investments in AI have begun to yield tangible results.”

He made it clear that Alibaba sees artificial intelligence as the driving force behind its cloud revenue, even though total company revenue came in weaker than expected. The company is currently sinking 380 billion yuan (about $53.37 billion) over three years into AI tech, making it one of China’s biggest investors in this space.

The news made waves in the market. Alibaba’s Hong Kong-listed stock rose 2.3% to HK$146.1 on Thursday, after dipping earlier in the session. The stock has gained 71.6% this year. But over in New York, shares were down 2.2% on Wednesday. Still, U.S.-listed shares are also up about 71.1% year-to-date. So despite day-to-day swings, the long game is clearly what investors are eyeing.

This deal also comes as convertible bonds get hot again across Asia. Hong Kong’s capital markets have seen a jump in deals over the last six months. Another player, China Pacific Insurance, just launched its own zero-coupon convertible bond targeting HK$15.55 billion ($2.00 billion).

Dealogic says the Asia-Pacific region has seen $27.8 billion in convertible bonds so far this year, compared to $28.7 billion by this time last year. That makes this the strongest year for such deals in three years.

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