Tencent priced a $2.5 billion dual-tranche bond early in Asia's morning on Wednesday, the largest ever tech bond from Asia ex-Japan, buoyed by strong US investor interest that caused books to swell up to $13 billion before the announcement of its final price guidance.
The transaction’s book building process – which began marketing on Monday afternoon during US hours – lasted for 24 hours and closed on Tuesday night, also during US hours, resulting in more than 65% of the books going to US investors for each tranche, according to a banker close to the deal.
Tencent’s Reg-S/144A-registered deal, which consists of a $500 million three-year tranche and a $2 billion five-year offering, also came before the flurry of Asian supply that hit markets on Tuesday morning when Korea Expressway, Sinochem and Union Bank of India marketed three-, five- and 5.5-year benchmark dollar offerings respectively.
“The US roadshow had helped built some very good groundwork in terms of bringing and gathering the momentum for Tencent’s order when we first announced it in US hours on Monday,” said the source. “We wanted US accounts to have the first look at the transaction before the flood of Asian supply hit markets on Tuesday.”
As a result, Tencent was able to price Asia ex-Japan’s biggest ever dual-tranche note from the technology space. Also, the tech firm managed to gather substantial interest for its $2 billion five-year offering, which is thus far the largest tranche for that tenor from a Chinese issuer, according to Dealogic data.
The bond issuance comes at a time when Chinese firms are increasingly looking to overseas investors for their funding needs. Part of Tencent’s medium-term note programme, the proceeds from the bond sale will be used for general corporate purposes as it embarks on an acquisition binge to compete with domestic rival Alibaba and even US tech giants including Amazon and Facebook.
Tencent is expanding its portfolio of fast-growing US startups. The company has backed mobile-messaging app Snapchat, e-commerce site Fab and mobile game maker Plain Vanilla.
Baidu was the last to raise Asia ex-Japan’s biggest bond from the technology space. In 2012, the Chinese tech firm sold a $1.5 billion dual-tranche offering, according to Dealogic data.
Comparables
The nearest comparables for Tencent’s three- and five-year bonds were its outstanding dollar-denominated paper expiring in 2016 and 2018, which had a fair value of around Treasuries plus 125bp and 166bp respectively before the announcement, according to a source familiar with the matter.
The three- and five-year tranches ended up pricing at Treasuries plus 115bp and 165bp, and have coupons of 2% and 3.375% respectively, according to a term sheet seen by FinanceAsia. This indicates that the three-year offering priced 10bp tighter than fair value while the five-year note priced flat.
Sources also add that, since Tencent’s transaction was primarily marketed in the US, US-based tech companies such as Amazon and eBay were also used as comparables.
“We didn’t draw a spread in between those comparables and Tencent’s but what we wanted to highlight is that Tencent’s offering is quite an attractive proposition over the companies that they are typically familiar with,” said a banker on the deal. “We did attract a lot of players from the high-grade tech credit space.”
According to electronic trading platform MarketAxess, eBay’s three-year debt recently traded to yield of 35bp points plus Treasuries, while Amazon’s bond of similar maturity traded to yield of 57bp plus Treasuries.
Tencent’s three-year offering was trading at Treasuries plus 159bp in secondary markets shortly after it priced while its five-year note was trading at Treasuries plus 105bp, according to Bloomberg.
Deutsche Bank, Barclays and JPMorgan were the joint global coordinators and bookrunners of Tencent’s transaction. Other bookrunners include HSBC, ANZ, Bank of America Merrill Lynch, Bank of China Hong Kong, Citi, Credit Suisse, Goldman Sachs and Standard Chartered.
Other offerings
Other deals that made an appearing in Asia’s debt capital markets on Tuesday included Korea Expressway’s $500 million three-year bond, Sinochem’s $500 million five-year offering and Union Bank of India’s $350 million 5.5-year note.
Improving global market sentiment provided a suitable backdrop for these transactions to come to market, say bankers. For example, Asian stocks rose this week after US data and earnings boosted optimism about the world’s biggest economy while further signs of slowdown in China stoked speculation the government will add stimulus to stabilise growth.
The MSCI Asia-Pacific Index gained 0.9% to 139.16 last week. US industrial production increased more than forecast in March and Federal Reserve Chair Janet Yellen said the central bank remains committed to supporting the recovery.
Credit markets also held up. Asia high-yield cash spreads tightened by 1bp, while investment grade cash spreads tightened by 4bp over the past week, according to Morgan Stanley.
Korea Expressway’s paper ended up pricing 20bp tighter than its initial price offering of 100bp over Treasuries, supported by strong investor demand for the nation’s investment grade paper, says a source close to the deal. BofA Merrill, Deutsche Bank, Goldman Sachs and Nomura were joint bookrunners of the deal.
Sinochem’s bond also priced 20bp tighter than its initial price offering of Treasuries plus 175bp area, while Union Bank’s priced 10bp tighter than its initial price guidance of Treasuries plus 290bp area, according to term sheets seen by FinanceAsia.
Asia ex-Japan’s DCM market saw the year’s second highest numbers on record the week of April 7, which generated volumes of $8.2 billion after record week of January 6, which saw volumes touching as high as $12 billion, according to Dealogic data.
ANZ, Citi, DBS Bank, Goldman Sachs, HSBC, JPMorgan and UBS were joint bookrunners of Sinochem’s transaction, while BofA Merrill, BNP, Citi, JPMorgan and Standard Chartered were joint bookrunners for Union Bank’s deal.
