Author | Liu Baodan
Editor | Zhou Zhiyu
Alibaba, which plans to invest 380 billion yuan in building AI infrastructure, is providing funding support for strategic investments through innovative financing tools.
On July 3, Alibaba announced its plan to issue zero-coupon exchangeable bonds with a total principal amount of approximately HKD 12 billion, maturing in 2032, with the underlying exchangeable asset being shares of its subsidiary, Alibaba Health. Even if all shares are exchanged, Alibaba will still maintain a controlling stake in Alibaba Health.
Compared to conventional debt expansion, this issuance represents low-cost financing anchored to the equity value of Alibaba Health, reflecting institutional investors' optimism about the future stock price of Alibaba Health.
Since September 24 of last year, Hong Kong stocks have performed well in the global stock market, with the Hang Seng Tech Index rising over 40%. As of the day before the announcement, Alibaba Health's stock price had increased by 40% this year. However, share exchanges also mean a reduction in holdings; on July 4, Alibaba Health's stock price closed at HKD 4.220, experiencing slight declines for two consecutive days.
With the completion of this financing, Alibaba's focus on its core strategies in e-commerce and AI will gain greater momentum.
<h2>Equity-Linked Bond Issuance</h2>
On the eve of the nearly one-year anniversary of its dual primary listing in Hong Kong, Alibaba has initiated this large-scale offshore private placement financing, primarily targeting Asian sovereign funds, hedge funds, and other professional institutional investors.
The bonds will mature on July 9, 2032, and will not generate periodic interest. If redeemed, the price will be equivalent to 100% of the principal amount of the redeemed bonds; however, investors primarily aim to exchange shares, with options including Alibaba Health shares, cash, or a combination of both.
Thomas Chong, an analyst at international investment bank Jefferies, believes that Alibaba Health's stock price has risen approximately 40% year-to-date, which helps reduce financing costs. Additionally, the benchmark interest rate for exchangeable bonds denominated in Hong Kong dollars is lower than that in US dollars, making financing more advantageous.
Since 2025, the issuance of exchangeable bonds in Hong Kong has been relatively active, with Alibaba's current issuance scale of HKD 12 billion ranking among the industry's leaders.
Previously, Baidu issued USD 2 billion (approximately HKD 15.7 billion) in exchangeable bonds in March, with the underlying asset being shares of Trip.com held by Baidu. In May, Sinopec also issued HKD 7.75 billion in exchangeable bonds with its overseas subsidiary as the underlying asset.
Such bonds grant holders the right to exchange for the underlying stock at an agreed price in the future, and their attractiveness depends on investors' judgment of the underlying stock's prospects.
As Alibaba's flagship platform in the health sector, Alibaba Health primarily engages in pharmaceutical e-commerce, medical, and health services. In the fiscal year 2025, Alibaba Health achieved an adjusted net profit of 1.95 billion yuan, a year-on-year increase of 35.6%, with the adjusted net profit margin rising from 5.3% to 6.4%.
According to Wall Street Insights, the initial exchange ratio for Alibaba's bonds is approximately 160,500 shares of Alibaba Health for every HKD 1 million principal amount of bonds, with an initial exchange price of HKD 6.23 per share, which is 37.83% higher than Alibaba Health's closing price on the announcement date
HKD 6.23 is the pricing reference for investors to exchange shares in the future, and this pricing reflects investors' continued optimism about Alibaba Health's stock price. If Alibaba Health's stock price exceeds HKD 6.23, investors will have the opportunity to profit from the price difference through share exchange.
However, exchangeable bonds also represent a disguised reduction in holdings, leading to a drop in Alibaba's stock price. Since the announcement on July 3, Alibaba Health's stock price has fallen for two consecutive days, with a cumulative decline of over 9%.
Currently, Alibaba holds approximately 64% of Alibaba Health's shares. Alibaba emphasizes that after the exchange, Alibaba Health will still be its flagship medical health platform and consolidated subsidiary.
<h2>Providing ammunition for AI and e-commerce expansion</h2>
After two years of strategic adjustments, Alibaba has gradually locked in on two core strategies: e-commerce and AI. The former is accelerating its expansion into international markets, while the latter represents Alibaba's new future and is in the early stages of investment.
Alibaba's new business investments have primarily relied on the cash flow from Taobao. However, in recent years, Taobao has faced increasingly fierce competition, especially as instant retail impacts traditional e-commerce. Taobao is busy attacking the instant retail market, which also requires significant capital investment.
On July 2, Taobao Flash Sale announced a subsidy plan of 50 billion yuan, providing simultaneous subsidies to consumers and merchants over the next 12 months. Additionally, Taobao Flash Sale officially announced two brand ambassadors, Li Xian and Yang Mi. Earlier, Taobao Flash Sale also announced its sponsorship of the &#34;Su Super&#34; Changzhou team.
Alibaba's financial situation remains strong. As of the quarter ending March 31, 2025, Alibaba had a net cash position of 366.4 billion yuan. At the same time, Alibaba maintains a low debt ratio, ranking among the lowest debt levels and optimal credit ratings in China's leading internet industry.
Utilizing the current favorable window in the Hong Kong stock market for low-cost financing will undoubtedly enhance Alibaba's financial strength in the fields of AI, e-commerce expansion, and instant retail.
According to Wall Street Watch, Alibaba has had two large-scale financings since last year: one was a USD 5 billion convertible bond completed in May 2024, and the other was a bond issuance of USD 2.65 billion and 17 billion yuan in November. However, these were mainly for repaying overseas debts or share buybacks, leaning more towards capital management.
This time, Alibaba clearly stated that the net proceeds from the fundraising will be used for cloud computing infrastructure construction and supporting the development of international e-commerce business.
AI, as Alibaba's core growth engine in the medium to long term, is currently in a critical investment period. In February, CEO Eddie Wu announced an investment of over 380 billion yuan in cloud and AI infrastructure over the next three years. The Q4 financial report showed that Alibaba Cloud's AI-related product revenue has achieved triple-digit year-on-year growth for seven consecutive quarters.
However, Alibaba Cloud's adjusted EBITA profit for the fiscal year 2025 is only 10.6 billion yuan, which is negligible compared to the annual AI investment exceeding 100 billion yuan, and still requires continuous support from the Alibaba Group.
The international e-commerce business is also in an expansion phase and has yet to achieve profitability. In the fiscal year 2025, the adjusted EBITA loss for the international e-commerce business was 15.137 billion yuan. Alibaba's e-commerce business group CEO Jiang Fan previously stated that the profit and loss of cross-border business will significantly improve in the coming quarters
This refined financing backed by subsidiary equity also indicates that Alibaba is shifting towards a more prudent and efficient capital allocation model after the end of the high-growth era in the internet sector.
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Alibaba plans to raise funds for its 380 billion yuan AI infrastructure construction by issuing zero-coupon exchangeable bonds worth HKD 12 billion. The bonds will mature in 2032 and are primarily targeted at Asian sovereign funds and hedge funds. Although this financing may lead to a reduction in Alibaba Health's equity, Alibaba will still maintain its controlling position. Analysts believe that the rise in Alibaba Health's stock price will help reduce financing costs, and bond financing denominated in Hong Kong dollars is more advantageous

- Alibaba plans to issue approximately 12 billion HKD in zero-coupon exchangeable bonds, maturing in 2032, to fund its AI infrastructure investments.  
- The bonds are backed by shares of Alibaba Health, which has seen a 40% increase in stock price this year, reflecting investor confidence.  
- This financing strategy aims to bolster Alibaba's core e-commerce and AI initiatives while maintaining control over Alibaba Health despite potential share dilution.

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