Alibaba’s Hong Kong shares drop 5% after report of possible $5 billion convertible bond sale

Alibaba’s Hong Kong-listed shares tumbled more than 5% on Thursday due to a report that the Chinese tech titan is considering selling convertible notes to fund $5 billion.

Shares closed the trading day 5.24% lower, having fallen more than 6% earlier in response to the Bloomberg article.

According to LSEG data, the company was the Hang Seng index’s third poorest performer that day.

Bloomberg, citing anonymous sources, reported that a bond offering might occur as early as this week. Later on Thursday, Alibaba revealed intentions to offer convertible bonds for $4.5 billion. It intends to utilize the profits of the transaction to buy back part of its American depositary shares.

As of 10:10 a.m. ET, the firm’s shares had up 1.26%.

JD.com, a Chinese e-commerce rival, took a same route earlier this week, releasing a $1.75 billion convertible senior note maturing in five years with a 0.25% coupon.

Alibaba weathered a stormy 2023, which included a massive corporate structure reform and resulted in an 86% drop in fourth-quarter net profits.

In an effort to attract investors, the business stated in February that it was increasing the size of its share buyback program by $25 billion.

Earlier this year, Alibaba CEO Eddie Wu promised to “reignite” the company’s growth through additional investments. Early indications point to this strategy taking hold in the March quarter.

Additional funding might bolster the company’s operations in its core e-commerce sector, where it has faced a domestic slowdown caused by cautious spending among Chinese consumers. According to Chinese state news agency Xinhua, the larger Chinese economy is recovering slowly from the Covid-19 limitations, with the latest official numbers indicating an 11.5% year-on-year increase in Chinese internet retail sales.

Alibaba also intends to expand its market share in the burgeoning artificial intelligence and cloud services markets. The company launched the most recent edition of its Tongyi Qianwen large language model, a program that may power artificial intelligence applications, earlier this month, following the introduction of the technology’s first iteration in April 2023.

It has joined an ongoing price war in China, lowering costs by up to 97% on a few of its LLMs, according to Reuters.

Alibaba shares have up 4.03% on the Hong Kong Stock Exchange and 6.67% on the New York Stock Exchange this year.

CNBC’s Arjun Kharpal contributed to this report.