Alibaba Group Holding Ltd. is turning out to be a great investment this year: Not only its shares have jumped more than 60%, its convertible bonds are also up big time.
The notes, priced in May and due in 2031, have soared 38% in 2025, beating all peers with issuance bigger than $300 million in a regional benchmark index. Most of the gains came this month.
Global investors are repricing the potential for Chinese tech firms to capitalize on artificial intelligence following DeepSeek’s breakthroughs. Now Alibaba, which Thursday reported its fastest revenue growth in more than a year, is coming back in favor after a yearslong government crackdown sank its shares as much as 80%.
“Their rally is mostly a function of optimism around the company’s AI model and Beijing’s improvement in support for the private sector,” said Michael Youngworth, Bank of America Corp.’s head of global convertibles and preferred strategy. “For outright investors, the convertible bond allows managers to be long Chinese tech and AI theme in a more risk-limited way given the CB offers downside support via the bond floor.”
The $5 billion convertible bonds issue was a record dollar-denominated sale by an Asian company that allowed the Hangzhou-based e-commerce leader to take advantage of cheap financing at the time. Its size makes it the top member of the ICE BofA Asia Pacific Global 300 Convertible Index and helped drive the gauge’s 15% rise this year through Thursday.
Alibaba’s Hong Kong-listed shares climbed 15% Friday to a three-year high, after the American depositary receipts gained 8.1% to $135.97, well above the initial conversion price of $105.04 per US share.
While swapping bonds into shares can lead to dilution, Alibaba’s note has a so-called “capped call transactions” feature — similar to an options strategy that consists of one long call with a lower strike price, and one short call with a higher strike price — to help mitigate that risk. The capped call transactions were initially set at $161.60.
“With a massive buyback supporting the shares and a capped call structure that is still far away, the risk of dilution is currently non-existent,” said Leonard Vinville, head of convertibles at M&G Investment Management.
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