Purchases from key insiders come ahead of critical measure of tech giant's prospects

Jack Ma was the co-founder of Alibaba and is still the largest individual shareholder in the company with a stake estimated between 3-4% of the company Photo by STR/AFP via Getty Images

Major Alibaba shareholders have made big share purchases ahead of vital secondary market offering

Alibaba is set to close its $10 billion dollar secondary market share offering Wednesday. On the eve of its completion, key insiders have announced meaningful stock purchases, sending a strong signal to investors of their continued confidence in the company's prospects.

The billionaire Jack Ma, co-founder of Alibaba and one of China's richest men, acquired about HK$600 million ($77 million) of shares, according to sources cited by the South China Morning Post. Separately, Alibaba Chairman Joe Tsai and CEO Eddie Wu purchased around HK$202 million worth, according to regulatory filings lodged in Hong Kong.

The commitments from senior management and an influential figure like Ma, who is no longer on the company's board, helped to shore up Alibaba's foundering share price. In Monday trading in Hong Kong, the stock's market price (HK:9988) $(BABA)$ had closed several percent below the HKS112.70 transaction price, set by the deal's bookrunners Morgan Stanley, HSBC, UBS and CICC.

Bankers and management alike will be hoping that the message being sent to investors, that the massive spending on AI capex will generate handsome returns, will persuade them to participate in the equity offering. It's the largest-ever primary, follow-on share sale by a Chinese company with all of the proceeds designated for AI chips, infrastructure and AI models.

In common with most companies involved in the buildout of AI infrastructure, Alibaba's shareholders are being forced to weigh up whether the eventual payback will reward the upfront investment. Last week's second-quarter earnings release showed that its free cash flow had turned negative but its cloud business was expanding at 45% per annum, second only to Google in terms of growth.

In Tuesday trading, Alibaba closed 1.5% higher at HK$114.20. Alibaba's New York Stock Exchange-listed depositary receipts are indicating virtually unchanged from Monday's close at $118.64 in pre-market trading Tuesday.

-Jules Rimmer