Fitch Assigns First-Time 'A+' Rating to Alibaba, Proposed Notes

Fitch Assigns First-Time 'A+' Rating to Alibaba, Proposed
                             Notes

Link to Fitch Ratings' Report: Alibaba Group Holding Limited

Fitch Ratings-Hong Kong/Chicago/Sydney-13 November 2014: Fitch Ratings has for the
first time assigned China-based Alibaba Group Holding Limited (Alibaba) a Long-Term
Foreign-Currency Issuer Default Ratings (IDR) and a senior unsecured rating of 'A+'. The
Outlook is Stable. Fitch has also assigned an expected 'A+(EXP)' rating to the company's
proposed senior unsecured US dollar notes.

The final rating on the notes is contingent upon the receipt of final documents
conforming to information already received. The notes are rated in line with Alibaba's
senior unsecured rating of 'A+' as they will represent direct, unconditional, unsecured and
unsubordinated obligations of the company. The proceeds from the proposed senior
unsecured notes will be used to refinance Alibaba's existing debt and for general
corporate purposes.

KEY RATING DRIVERS

Dominant Market Position: The ratings reflect Alibaba's dominant position in China's
online shopping market. Alibaba has developed a sophisticated ecosystem that is difficult
for rivals to replicate. The ratings also benefit from Alibaba's robust profitability and
strong cash generation, reflecting its ability to monetise online shopping traffic through
proven online marketing and transaction-based services. The large size and potential for
sustainable growth in China's online shopping market help mitigate Alibaba's limited
geographical diversification.

Thriving Ecosystem: As Alibaba's ecosystem grows, network effects draw more users,
creating a virtuous cycle. The marketplaces are vital to merchants and highly valued by
buyers. In addition, services offered by other participants, including the Alipay online
payments system and 14 strategic logistics partners, further enhance the users' experience
on Alibaba's platform.

Low-Risk, Monetisation Proven Model: Alibaba has developed a marketplace business
model that is crucial to many online merchants' long-term success. Alibaba can expand
rapidly without the risks and capital requirements of sourcing, merchandising and holding
inventory borne by most traditional or online retailers. Alibaba has also developed a
variety of monetisation methods on its marketplaces, which are well received by
merchants and buyers.

Sustainable Market Opportunity: Fitch expects rising private consumption, further
penetration of online shopping and expanding product categories to drive the growth in
China's online shopping market, which has already surpassed the size of the US market.
iResearch expects China's online shopping gross merchandise value (GMV) to grow at a
compound average growth rate of 31% in 2013-2017.

Robust Profitability and Cash Generation: Fitch expects Alibaba to maintain high
profitability and robust cash generation due to its asset-light marketplace business model.
Excluding non-cash share-based compensation expenses, adjusted EBITDA margin was
59% in the financial year ended 31 March 2014 (FY14) and 52% in 1HFY15. We expect
free cash flow (FCF) margin to be over 40% in the next two to three years.

Alipay: Fitch believes that the non-ownership of Alipay does not affect Alibaba's credit
quality. Under a 50-year agreement, Alipay provides Alibaba with payment services at
preferential terms, an arrangement overseen by Alibaba's independent directors.
Furthermore, Alibaba receives 37.5% of Ant Financial Services' (Alipay's parent entity)
pre-tax profit. Although it is outside the group, Alipay is crucial to Alibaba's business and
contracts ensure that this relationship will continue to benefit Alibaba.

Low Leverage; Abundant Liquidity: Fitch expects Alibaba will be able to maintain a
conservative capital structure with a strong net cash position in the next few years. While
M&A will remain a feature of the Chinese internet industry, we expect Alibaba's pre-
M&A FCF to be strong enough to fund most of its M&A ambitions in the next few years.
Furthermore, Alibaba aims to manage its debt/EBITDA ratio within 1.5x.

Foreign Ownership Restrictions: Chinese law restricts foreign equity ownership in
internet and online advertising companies in China. Alibaba operates its websites in
China through contractually controlled, consolidated and affiliated Chinese entities.
These variable interest equity (VIE) arrangements are the usual mechanism for overseas
investors to participate in China's restricted sectors and are a credit weakness as they may
not be as effective in providing control as direct ownership or may face legal challenges
in the future.

VIE Weaknesses Mitigated: Alibaba generates over 90% of revenue from, and keeps
almost all the cash and assets within its wholly owned subsidiaries in China rather than at
the contractually controlled, consolidated and affiliated entities. The alignment of
Alibaba's and its affiliates' objectives and the company's continued good relationships
with the government and regulatory authorities mitigate the risks from the VIE
arrangements.

Proposed Notes Not Guaranteed: Fitch does not consider subordination of the notes to be
a key credit issue. On issuance, neither Alibaba's subsidiaries nor its controlled VIE
entities will guarantee the proposed notes. Therefore the notes are structurally
subordinated to trade and funding creditors at these entities. While the notes will be
structurally subordinated on issuance to Alibaba's existing USD8bn syndicated term loan

facility and the undrawn USD3bn revolving credit facility (RCF), we expect the term
facility to be repaid through the issue of the proposed notes and existing cash on hand.

Under the terms of the RCF agreement, the guarantee and share security from
subsidiaries to the lenders also are automatically released upon full refinancing of the
term facility. If this release has not taken effect within 30 days of closing, equal
guarantees will be provided to the notes holders, equivalent to those under the existing
RCF and term loan facility. As a result, the RCF will rank pari passu with the proposed
notes.

In addition, we have not notched down the notes as, firstly the company's funding
strategy is not to raise significant structurally superior downstream debt. Secondly, the
company is unlikely to approach the threshold of 2.0x-2.5x prior-ranking debt/EBITDA
at which we would consider notching down the senior unsecured ratings, given its target
gross debt/EBITDA ratio of 1.5x.

RATING SENSITIVITIES

Negative: Future developments that may, individually or collectively, lead to negative
rating action include:

- sustained decline in operating cash flow

- significant M&A that negatively affect the operations or the business profile

- failure to maintain a net cash position

- a shift to more aggressive financial policies that result in sustained funds flow from
operation (FFO)-adjusted leverage above 1.5x

- evidence of greater government, regulatory or legal intervention leading to an adverse
change in the company's operations, profitability or market share

Positive: For the short to medium term, Alibaba's rating is at its ceiling and takes into
account Fitch's expectation of profit growth. The agency may consider an upgrade if the
company develops businesses that materially diversify cash generation away from
operations that are subject to Chinese government and regulatory risk.

A presale report is available from www.fitchratings.com or by clicking on the link above.

Contact:

Primary Analyst

Kelvin Ho

Director

+852 2263 9940

Fitch (Hong Kong) Limited

2801, Tower Two, Lippo Centre

89 Queensway, Hong Kong

Secondary Analyst

Jason Pompeii

Senior Director

+1 312-368-3210

Committee Chairperson

Steve Durose

Senior Director

+61 2 8256 0307

Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email:
brian.bertsch@fitchratings.com; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email:
peter.fitzpatrick@fitchratings.com; Leslie Tan, Singapore, Tel: +65 67 96 7234, Email:
leslie.tan@fitchratings.com; Leni Vu, Sydney, Tel: +61 2 8256 0326, Email:
Leni.Vu@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email:
wailun.wan@fitchratings.com.

Additional information is available on www.fitchratings.com

Applicable criteria, "Corporate Rating Methodology: Including Short-Term Ratings and
Parent and Subsidiary Linkage", dated 28 May 2014, are available at
www.fitchratings.com.

Applicable Criteria and Related Research:
Corporate Rating Methodology - Including Short-Term Ratings and Parent and
Subsidiary Linkage
Rating Technology Companies

Additional Disclosure

Solicitation Status

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY
FOLLOWING                         THIS                     LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.           IN
ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH
RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE
'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S
CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST,
AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND
PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT'
SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER
PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD
PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD
ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE
ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

30 North Colonnade, London, E14 5GN