Why is Alibaba launching a share placement when it holds more than 400 billion yuan in capital reserves?
Over the weekend, Alibaba released a piece of news that most people must have come across.
01
Alibaba announced that it will place 710 million new shares to a group of institutional investors outside the United States at HK$112.7 per share, raising a total of HK$800 billion.
Yes, you read that right, HK$800 billion raised from the market. This is the first time Alibaba has raised capital from the market since its listing on the Hong Kong Stock Exchange in 2019.
The next day when the Hong Kong stock market opened, the secondary market could not stay calm anymore.
Alibaba's share price opened sharply lower and fell significantly, dragging the Hang Seng Tech Index down by nearly 4%.
After the news came out, I specifically checked Xueqiu and stock discussion forums, and the platforms were almost in an uproar. The most common angry comment goes like this:
There are hundreds of billions of cash lying on the books, yet you still come to the market to raise money? Some people put it more directly: such a highly profitable company, why not use its own money, but insist on issuing new shares to dilute our holdings?
Complaints are complaints, accounts still need to be calculated. First let's see exactly how much this sum of money is.
According to Alibaba's latest financial report, the cash reserve on its books is 474.5 billion RMB. With this amount of money, if you spend 100 million RMB every day, it can last for more than ten years.
Yet this company with 474.5 billion RMB lying in its accounts turned around and asked the market for HK$800 billion.
If you say it is not short of money, it is indeed not short of it; if you say it is short of money, it actually is. What it lacks is the money that can be spent freely, and the two are not the same thing.
What is more notable is that it still holds a rarely used card in its hand.
The share repurchase authorization passed at last year's general meeting of shareholders allows it to buy back up to 1.9 billion of its own shares, but only 0.09% of the authorization has been used so far, which is almost negligible. In the past six years, it has spent more than 50 billion US dollars on repurchases, ranking at the top of the Hong Kong stock market in terms of repurchase intensity.
However, in the latest year, its repurchase spending has been directly cut to 1 billion US dollars, 90% less than the over 10 billion US dollars annual repurchase scale in previous years. On the one hand, it spends less and less money buying its own shares, and on the other hand it raises money from the market by issuing new shares, the two actions are conflicting.
Let's go through the accounts, most of the 474.5 billion RMB is not available for free use.
For example: it is like the long-term family savings that will never be touched under normal circumstances. The company needs money for daily operations, and it is still burning money in the food delivery battlefield, spending nearly 90 billion RMB a year.
This sum of money acts as a safety cushion and fallback option. Every time a penny of it is used, the market will panic a little more.
The money that can be freely used is the actual cash earned each quarter, which is equivalent to the monthly payroll flow.
Alibaba earns 22.9 billion RMB in a quarter, 11% more than the same period last year, showing that its core business still maintains strong profitability.
However, in this quarter, it invested 67.7 billion RMB, 75% more than the same period last year, almost all of which was invested in AI infrastructure, equivalent to a large-scale expense at the level of home renovation and relocation for an ordinary family.
67.7 billion RMB, which means it has to spend more than 700 million RMB on average every day. 22.9 billion versus 67.7 billion, leaving a gap of 44.8 billion RMB.
This gap did not just appear this quarter. The free cash flow, which is the remaining amount of earned cash minus the invested capital, has been negative for two consecutive quarters, and has been decreasing year by year for 11 consecutive quarters.
In other words:
Alibaba's spending speed has been outpacing its profit growth for almost three years.
The money spent is not wasted, one major expense is the food delivery war. Last summer, Taobao Flash Shopping went head-to-head with Meituan. With platform subsidies, the first milk tea of autumn was even cheaper on the platform than in physical stores, and the peak daily order volume hit 120 million units.
The other major expense is the AI commitment. In February 2025, Alibaba announced a three-year AI investment plan of 3800 billion RMB, half of which has been implemented so far.
Both initiatives are paths chosen by Alibaba itself, all the money is spent openly, and none of it is spent randomly.
There is a formula that can help you understand Alibaba's accounts:
Freely available money = Cash on book - Untouchable money - Money already committed
Therefore, out of the 4745 billion RMB cash on the book, the untouchable part is the long-term reserve, and the committed part is the capital for the food delivery battlefield and the AI investment plan. After subtracting these two parts, there is actually very little money left that can be spent freely.
The market's complaint of "raising money even when you are rich" is a reflection of dissatisfaction with the attitude, but after going through the accounts you will find that it is essentially a structural problem.
All the money is queued up to be spent, and the available cash flow is not enough, so where can this gap be filled? There is only one direction: raise capital externally.
02
There are generally three ways to raise capital externally: The first one is to issue bonds. The second one is to use the cash reserve on the book. The third one is to issue new shares and sell them to institutions through private placement, which is the option Alibaba chose.
Why did it choose the third option?
Issuing bonds means borrowing money that has to be repaid with interest. Under normal circumstances, this is the first choice for large companies to raise capital, with low cost and no dilution to shareholders.
But at the current time point, it is not cost-effective for Alibaba to borrow money, and this conclusion is supported by data.
In the past two years, the AI arms race has been extremely fierce, and global tech giants are rushing to issue bonds. Since 2026, companies including Alphabet, Amazon, Meta, Microsoft and Oracle have issued 159 billion US dollars of bonds, nearly half more than the whole of last year.
With more bonds being issued, the interest rate has been pushed up. Newly issued bonds have to offer greater concessions, which means you have to raise the interest rate further or lower the price to attract investors to subscribe.
Nomura made it very clear: the high cost of the bond market is the main reason why Alibaba chose the share placement.
In addition, there is the constraint of credit rating. Alibaba currently has an A+ credit rating, which is earned by its many years of accumulated strength.
However, rating agencies have warned that Alibaba's profit base this year will drop to about 70% of its peak level. If it adds more leverage to borrow money at this time, its credit rating will be at risk of being downgraded.
Once the rating is downgraded, the cost of borrowing in the future will be even higher, which will narrow its financing path further.
Alibaba is no stranger to borrowing. Last September, it issued 3.168 billion US dollars of convertible bonds that do not even require interest payment. After one round of borrowing, further borrowing will be very expensive.
By contrast, Tencent is able to issue bonds easily. In June, it issued 31.5 billion RMB of bonds in one go. Its quarterly net profit is 58.1 billion RMB, while its quarterly investment is only 31.9 billion RMB. Its own profit can cover most of the investment, and bond issuance is only a small supplement.
Alibaba's quarterly net profit is 10.4 billion RMB, while its quarterly investment is 67.7 billion RMB, the gap is three to four times larger than Tencent's. Borrowing once or twice cannot fill this huge hole.
As you can see, the first option is obviously not feasible, what about the second option: using the cash reserve?
Alibaba has 4745 billion RMB lying on its books, that is a fact. But this sum of money cannot be touched. Once it is used, the daily operation, the ammunition for the food delivery battlefield, and the fallback plan in case of emergencies will all disappear.
The market is most afraid of a company that gambles all its life-saving money, which is even more terrifying than financing.
Going deeper, it is a problem of where the risk is allocated. Borrowing requires principal repayment and interest payment, the interest is fixed, but the return of AI investment is uncertain. If the return of computing power investment comes slower than expected, the creditors will not care about these situations, and the interest must be paid in full every day.
At that time, all the risk will fall on the company itself.
Selling shares is different, there is no need to repay principal or pay interest, the risk is shared with all shareholders. In industry terms, the risk is retained on the equity side.
So there is only the third option left: selling shares.
710 million new shares at HK$112.7 per share, raising HK$800 billion, with a net in-flow of HK$797 billion, at a discount of around 9%.
Some people complain that Alibaba sold the shares at a low price as soon as they see the discount, but in fact the usual placement discount in the Hong Kong stock market ranges from 5% to 10%, 9% is within the normal range, it is not a fire sale at all, it is just a wholesale price.
There are many investors competing for these "wholesale price" shares. The placement was oversubscribed in less than an hour after the order opened, with a total demand of 28 billion US dollars, nearly 3 times the amount of funds raised.
I specifically checked the relevant data:
Sovereign funds and long-term institutional investors from the Middle East, Europe and Asia subscribed for more than 40% of the shares. They value the underlying assets behind this equity.
The annualized revenue of AI products has reached 49.5 billion RMB, and the cloud business revenue is still accelerating. Long-term capital investors think it is a good deal to buy shares of a leading AI company at a 9% discount.
Put the three financing options into the previous formula:
Issuing bonds means adding interest expenses to the "committed money"; using the cash reserve means touching the "untouchable money"; selling shares means using "future money" to cover current expenses.
Alibaba chose the last option, this path does not seem too broad, and the accounts are calculated very clearly: the dilution ratio is 3.7%, the total share capital changes from 19.175 billion shares to 19.885 billion shares. In the future, the annual profit will be divided by 710 million more shares, and the equity proportion per share will be reduced by 3.7 percentage points.
The 9% discount is within the controllable range, but on the first day after the announcement, the share price fell by nearly 10%, falling below the placement price.
03
What is the market afraid of? It is not afraid of the HK$800 billion itself.
Michael Burry, the prototype of the movie "The Big Short", publicly stated on his social platform:
I have completely liquidated my Alibaba position and switched to JD. I will not be interested in Alibaba unless its share price drops by half.
He put it very directly: I cannot support this kind of share issuance, and Alibaba's return on investment will continue to decline. He added that the Chinese food delivery war will eventually end with reduced competition and improved profit margins, which will change the fate of JD and Meituan.
The return on investment Burry mentioned can be explained as:
A lot of money has been invested, but the return has not appeared yet, the share capital has increased first, the total cake has not become larger, but there are more people sharing the cake, so the return on investment will naturally go down, and this is the key indicator he values.
In fact, the market attitude was already shown last Friday.
On the day the financial report was released, Alibaba's US stock price rose by 1%, but fell by 8.57% the next day. When the placement announcement was released on Sunday, the answer was revealed.
No one can tell clearly whether someone knew the news in advance, or the market was simply scared by the numbers in the financial report, and the market did not bother to argue, it chose to sell off first.
3.7% is the mathematical result on the book, and the nearly 10% drop is the emotional reflection on the price. The math can be calculated, but the emotion cannot.
One Burry selling off his position does not mean all foreign capital is leaving. Sovereign funds from the Middle East, Europe and Asia are competing to sign the subscription agreement.
David Tepper, Wall Street's most famous China bull, has reduced his Alibaba position from 7.1 million shares to 2 million shares in the past two quarters, cutting more than 70% of his holdings, but he did not liquidate all his positions, and Alibaba is still his largest Chinese stock holding.
One group is selling off, another group is buying in, both sides are expressing their attitudes with real money.
What really makes old shareholders feel nervous is another thing: this HK$800 billion placement may only be the first tranche.
Why? Half of the 3800 billion RMB AI investment plan has been implemented, and there is still 1900 billion RMB left, equivalent to around HK$2080 billion. This HK$800 billion placement can only cover 30% to 40% of the remaining capital demand.
According to the planned pace, the remaining 1900 billion RMB will be spent in the next one and a half years. Converted to RMB, this HK$800 billion is less than 740 billion RMB, which can only support 7 to 8 months of spending, and the remaining gap will definitely require more capital raising.
An analyst from Bank of America mentioned that further external financing may be carried out in the follow-up period.
By the way, here is a detail. Every step is within the regulatory rules, but the rhythm is very tight: in early July, Alibaba was still repurchasing its own shares. According to the rules of the Hong Kong Stock Exchange, a company cannot issue new shares within 30 days after repurchasing shares, and the placement announcement was released right after the moratorium period ended.
After this placement, the company promised that it will not issue new shares within 90 days; the market remembers the rule that new share issuance will be allowed again after the 90-day period.
This is the sentence that the market fears most.
Retail investors in the Hong Kong stock market have muscle memory for share placement. In March 2025, Xiaomi placed 425 billion Hong Kong dollars of shares at the historical high, and one year later, the participating institutions had a floating loss of more than half.
This precedent is a heavy stone in the hearts of all old shareholders in the Hong Kong stock market. History will not repeat itself simply, but the "placement curse" is a memory that retail investors will not forget for a long time.
However, Xiaomi's placement price was near its historical peak, while Alibaba's current share price is 20% above its 52-week low. The positions are different, and the story may not repeat itself, but short sellers and retail investors do not care about these differences, they choose to sell off first.
As you can see, for the same HK$800 billion placement, there are two completely different attitudes.
Sovereign funds are competing to sign the subscription agreement, because they trust the underlying assets behind this equity: the annual revenue of AI products reaches 49.5 billion RMB, and the cloud business is still accelerating