Alibaba Group Holding (baba) has now been ramping up its Singles' Day online shopping frenzy for eight years, but, this time, it has added a new ingredient to the celebrity-studded extravaganza: securitization.
Last week, a unit of Alibaba-backed Ant Financial sold 4 billion renminbi ($578 million) securities backed against small loans granted to consumers on Nov. 11, also known as "Double 11" day. This is a festival that started in Nanjing in the 1990s to celebrate singlehood, but has since turned into the world's largest online shopping day.
The enthusiasm spread to the asset-backed securities, which were well received, despite a liquidity squeeze in the onshore market.
Although it represented just a small portion of a record 120.7 billion renminbi in sales that day across Alibaba's platforms, the transaction underlined the financial ambitions of the e-commerce giant, which is yearning to challenge traditional banks with its sprawling online credit and banking empire. ABS RUSH
Chongqing Alibaba Small Loan provided the underlying loans for the ABS through an online consumer credit portal, Ant Check Later ("Huabei" in Chinese), where 604.8 million purchases were made on Nov. 11.
The portal allows consumers to pay for purchases made on various e-commerce platforms under Alibaba Group, including Taobao, one month after orders are delivered. Consumers can also chose to pay in installments.
With the Shanghai Stock Exchange's approval, the ABS were privately placed last Monday to qualified institutional investors with net assets of over 100 million renminbi and asset management products.
A 1.8 billion renminbi senior A1 tranche, due on December 21 this year, was priced at par to yield 3.35%. A 1.624 billion renminbi senior A2 tranche of six months was priced at 3.55%, while a 256 million renminbi senior B tranche of 12 months was offered at 4.0%. The three senior tranches scored AAA, AAA and AA- ratings, respectively, from Shanghai Brilliance Credit Rating & Investors Service.
Chongqing Alibaba Small Loan retained 320 million renminbi in unrated subordinated tranches as credit enhancement to the senior tranches.
The transaction was launched amid rising onshore rates, but still managed to close twice oversubscribed.
In the past two weeks, the overnight Shanghai Interbank Offered Rate, a benchmark for onshore funding cost, jumped over 20bp, forcing dozens of issuers to postpone bond deals.
"The pricing reflected a tighter liquidity condition at the time of issuance, but the deal still had the support of decent demand," said a banker with Tebon Securities, the manager on the ABS.
Ant Financial is awaiting regulatory approvals for an investment in Tebon Securities, and domestic newspaper Securities Times reported that it aimed to hold as much as a 75% stake in the brokerage.
Prior to the Singles' Day ABS, Chongqing Alibaba Small Loan had raised a massive amount of funds from securitization over the previous three months. Since the first transaction flew in August, it has issued 24 billion renminbi of securities backed against consumer loans through Ant Check Later under a 30 billion renminbi ABS program.
The ABS program was approved in June for securities against revolving consumer loans, the banker said, therefore it did not fit the Singles' Day festival ABS. That was the reason Alibaba needed to offer new ABS instead of doing another repeat issue under the 30 billion renminbi program.
Market participants said Ant Financial's ABS not only appealed to investors with higher risk tolerance, but also to state-owned banks.
"In the stock-exchange market, investors have become receptive to Ant Financial's ABS," said a banker at another Chinese securities firm and not involved in the deal. "Even very conservative investors, like ICBC's asset management department, participated in its ABS." MYBANK NEXT While the cash bond market, which state-owned issuers dominate, does not seem to be ready to embrace the new breed of privately owned e-commerce companies with high debt ratios, the securitization format has proven to be a golden opportunity.
"Alibaba is not likely to achieve cheaper funding costs with cash bonds than with ABS," said an analyst with China Merchants Securities. "ABS relies on the quality of underlying assets rather than the issuer's rating."
Also, Alibaba's foray into securitization will not stop at Ant Check Later.
MYbank, an internet lender in which Ant Financial holds a 30% stake, is looking to raise 2 billion renminbi through CLOs in the interbank bond market in December.
The bank, which has no physical branches, offers loans of up to 5 million renminbi to small and medium-sized Chinese enterprises that have struggled to obtain credit from major financial institutions.
It was set up last year with registered capital of Rmb4bn.
China Securities and CICC are lead underwriters on MY Bank's offering.