Alibaba cuts planned loan size to buy back Yahoo stake

HONG KONG Wed Jan 11, 2012 8:59am EST

The Yahoo! offices are pictured in Santa Monica, California April 18, 2011. Yahoo! will report its quarterly results on Tuesday.   REUTERS/Mario Anzuoni

The Yahoo! offices are pictured in Santa Monica, California April 18, 2011. Yahoo! will report its quarterly results on Tuesday.

Credit: Reuters/Mario Anzuoni

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HONG KONG (Reuters) - Alibaba Group ALIAB.UL has reduced the size of its debut loan to $3 billion, the funds which the Chinese e-commerce giant plans to use to buy back part of the 40 percent stake held by Yahoo Inc (YHOO.O), three sources familiar with the matter told Reuters on Wednesday.

Alibaba had initially planned to raise as much as $4 billion, but according to one of the sources, the company could instead tap cash reserves to fund the deal.

The source said Alibaba, parent of Hong Kong-listed Alibaba.com Ltd 1688.HK, had more than $3 billion in cash.

Yahoo's stake could be worth up to $13 billion, based on the $1.6 billion paid for a 5 percent stake in Alibaba Group by Yunfeng Capital, Silver Lake and other investors in November last year.

Alibaba Group, founded by billionaire entrepreneur and former English teacher Jack Ma, declined to comment.

The sources declined to be identified as they were not authorized to speak to the media.

Ma's feud with Yahoo and his plans for the stake have gained renewed attention lately with Yahoo the subject of takeover interest. Reuters reported in December that Blackstone Group LP (BX.N) and Bain Capital were preparing a bid for all of Yahoo, with Alibaba among its partners for the roughly $25 billion deal. Japan's Softbank Corp (9984.T) was also part of the consortium.

The reduced loan size for Alibaba could attract more lenders to the deal, according to two of the sources.

Alibaba was looking to put together a bank group of six to seven banks by early February, according to one of the sources.

The borrower has entered a tight market, with many European banks in particular reducing lending activity in Asia as they shore up balance sheets at home.

The deal structure - the loan is at the China holdco level - is also tricky for some banks to gain internal approvals to join, particularly for large underwrites.

Banks prefer to lend to operating companies, where cash flows from the company directly pay the loan. Holdco loans are repaid through dividends, and payments have to be upstreamed from the operating company to the holding company.

Rothschild ROT.UL, acting as debt adviser to Alibaba, in December asked lenders to provide underwritten commitments of $1 billion. Those commitments are expected to be reduced under the changed structure.

(Editing by Chris Lewis)

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