Home » Behavioural Investing » Alibaba Short Term Loans=Long Term Problems. IPO Hysteria Pending $ALIBA

Alibaba Short Term Loans=Long Term Problems. IPO Hysteria Pending $ALIBA

Alibaba who wishes to become a publicly traded company has convinced about nine big banks to lend it $8 Billion in supposedly US Currency. Normally companies prepping for an IPO do not find it helpful to become mega-borrowers. This logic is not in play for Alibaba. The tranches are all very short-term or revolving

Some of the funds are to repay existing payables and indebtedness. The press releases also speak of anticipating an IPO where the banks would be repaid from proceeds raised. This may be sound thinking on the part of the banks but if I was an investor I would not be motivated knowing that my precious capital will repay bank loans. I would be impressed if capital would go directly into some asset of wealth generation. Basics such as R&D, product expansion, accretive acquisitions come to mind.

The pump has already begun. Investors are expected to be impressed that so many large sophisticated banks are backing this horse. The whole “China is enormous” thing will be mentioned several times.

Just remember an $8 Billion dollar short-term loan is incredibly motivating in many ways.

Alibaba coming to your broker soon.

George Gutowski writes from a caveat emptor perspective.