Alibaba's $4 bn loan takes shape

HONG KONG, CHINA: A handful of lenders are considering committing to the $4 billion loan for Alibaba Group that will help the Chinese e-commerce giant buy back part of the 40 per cent stake that Yahoo Inc owns in the company, Thomson Reuters publication Basis Point reported on Thursday, citing sources.

A term sheet should be finalised this week after lenders approached for the financing had provided some feedback, Basis Point reported, citing sources close to the matter.

A law firm has been appointed and lenders will be allowed to commence due diligence once the term sheet is finalised. The banks have been given a deadline of the third week of January to respond with commitments to the loan, according to a source.

Alibaba's debt adviser, Rothschild, earlier had sent out term sheets to banks requesting underwritten proposals for the debt financing. Banks were asked to provide underwritten commitments of $1 billion with expected final holds of $400 million.

The borrower is seeking a three-year loan with a margin of around 450 basis points over the London Interbank Offer Rate.

"Even though the pricing is attractive, the underlying credit is a difficult one to assess as an Internet business does not have tangible assets," one banker in Hong Kong told Basis Point.

"The deal has a lot of hurdles to overcome, one of which is the limited number of liquidity providers," the source added.

Another source said the structure of the financing was the biggest concern.

"If there is more clarity around the buyout, it will be helpful to potential lenders," the source said, referring to Alibaba's separate, joint bid for Yahoo.

The Chinese e-commerce company is partnering with U.S. private equity firms Blackstone Group and Bain Capital and Japan's Softbank Corp, preparing a bid for all of Yahoo in what could be a roughly $25 billion deal.

The joint bid is separate from the buyback of Yahoo's Alibaba stake.

Alibaba, founded by billionaire entrepreneur and former English teacher Jack Ma, has long signalled its intention to buy back the stake.

Apart from Yahoo, Softbank also owns 40 per cent of Alibaba, while Yunfeng Capital -- co-founded by Ma, U.S. private equity fund Silver Lake and other investors -- took a 5 per cent stake in November.