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MarketScreener Homepage  >  Equities  >  Stock Exchange of Hong Kong  >  Tencent Holdings Ltd    0700   KYG875721634

TENCENT HOLDINGS LTD (0700)
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Tencent : Joins Asia-Tech Debt Rush With Its Biggest Bond Sale

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01/12/2018 | 08:56am CEST
By Manju Dalal 

Chinese internet giant Tencent Holdings Ltd.'s visit to the bond market this week marked the latest in a string of Asian technology firms that have been issuing more debt as their market values have swelled.

Tencent, which owns the popular messaging service WeChat and is one of the world's largest videogame publishers, on Thursday priced $5 billion in U.S.-dollar bonds that mature in five, 10 and 20 years--its largest-ever bond sale.

The Shenzhen-based company last issued bonds about three years ago. At that time, it priced its 10-year bonds at 2.05 percentage point above U.S. Treasury yields, or 3.8%. This time it paid lower rates to borrow: Its 10-year bonds were priced at 1.05 percentage point above U.S. Treasury yields, or 3.595%.

Strong investor demand also allowed Tencent to price its 20-year bonds to yield under 4% a year, locking in low long-term interest rates. The offering also included five-year floating rate notes that were priced at 0.6 percentage point above the three-month London interbank offered rate, according to a banker on the deal. That Libor benchmark was recently 1.7%.

Tencent's debt sale came about a month after Chinese e-commerce behemoth Alibaba Group Holding Ltd. issued $7 billion in bonds with maturities ranging from 5.5 to 40 years. Other Asian tech issuers in the last year included Baidu Inc. and Lenovo Group Ltd., according to data provider Dealogic.

Together, the bond offerings reflect the growing significance of corporate bond issuers in Asia, particularly from China. Chinese tech companies issued $12.1 billion in dollar bonds in 2017, more than four times as much as the year before, according to Dealogic. Outside of the banking sector, only real-estate companies and so-called holding companies--often known as conglomerates--issued more debt from China.

Chinese real-estate companies issued $27 billion in bonds last year, nearly three times as much as a year ago, while conglomerates raised about $13 billion, nearly 2.5 times their 2016 fundraising. Overall, Chinese companies raised $118 billion in bonds last year.

In the past few years, Asian tech companies have seen a meteoric rise in their market capitalization. At the same time, their debt levels have remained relatively low, giving them room to raise more funds from the bond markets. Shares of Tencent and Alibaba roughly doubled last year.

In doing so, Chinese tech firms are following the lead of Apple Inc., the world's largest tech company by market value, which has issued billions of dollars worth of bonds in recent years despite having a sizable cash balance.

"These companies seem to be taking advantage of the strong (bond) markets at the moment," said Luther Chai, a research analyst from CreditSights in Singapore.

Bond markets have been on a tear in the past year as investors have rushed to buy debt issued by companies, particularly those in Asia. Thanks to this strong demand, the cost of borrowing money using bonds is now around its lowest in many years.

Like its Asian peers, Tencent is likely to use the funds raised to partially repay its existing debt and for future acquisitions. The company has $3 billion of debt maturing during the first three quarters of 2018, Mr. Chai noted in a research note earlier this week. Tencent already owns stakes in prominent overseas companies including Snap Inc., Tesla Inc. and Spotify AB.

As with Alibaba's offering, Tencent's bond offering received a positive response from investors in the U.S. who placed nearly half of the roughly $42 billion in orders for the deal, according to a person familiar with the matter.

Tencent's bonds are expected to be rated A2 by Moody's, a notch below those of Alibaba.

The bond offering followed two days of meetings with investors in Asia, Europe and the U.S. via 14 banks including Deutsche Bank AG, Bank of America Merrill Lynch and HSBC Holdings PLC.

Write to Manju Dalal at manju.dalal@wsj.com

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Financials (CNY)
Sales 2018 320 B
EBIT 2018 95 352 M
Net income 2018 81 921 M
Finance 2018 58 714 M
Yield 2018 0,38%
P/E ratio 2018 29,20
P/E ratio 2019 23,79
EV / Sales 2018 7,23x
EV / Sales 2019 5,29x
Capitalization 2 376 B
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Mean consensus OUTPERFORM
Number of Analysts 43
Average target price 385  CNY
Spread / Average Target 55%
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Managers
NameTitle
Hua Teng Ma Chairman & Chief Executive Officer
Chi Ping Lau President & Executive Director
Yu Xin Ren COO & President-Interactive Entertainment Group
Shek Hon Lo Chief Financial Officer & Senior Vice President
Chen Ye Xu Chief Information Officer
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