Institutional investors are showing strong interest in Tencent Holding’s upcoming $5 billion bond, which could well be the biggest offshore US dollar bond issued in Asia excluding Japan this year.
The $5 billion bond offering from the Chinese social media and gaming giant will eclipse China Evergrande Group’s $3 billion bond sale in January.
Marketing took place on Tuesday and Wednesday, April 2 and 3, when the joint global coordinators made calls to fixed income investors in financial institutions in Asia, Europe and the US.
Tencent also issued $5 billion of bonds in January last year, in a deal that was oversubscribed more than eight times. That issue was the fourth largest offshore US dollar bond deal in Asia including Japan last year, according to Dealogic. Last year’s biggest US dollar bond deal in Asia including Japan was the $6.44 billion issue by China National Chemical Corporation (ChemChina).
Joint bookrunners and lead managers of Tencent’s planned bond are Deutsche Bank, HSBC, Goldman Sachs, Morgan Stanley, Bank of China (Hong Kong), Bank of America Merrill Lynch, BNP Paribas, Credit Suisse, ICBC, JP Morgan, Mizuho Securities, MUFG and SPDB International.
“Many investors are interested in the name because of the limited number of tech companies in Asia, particularly China, which issue bonds,” said one finance executive.
The Hong Kong-listed firm (A1/A+/A+), which has a market capitalisation of HK$3.59 trillion ($457 billion), owns social media platforms like QQ and WeChat. The latter includes WeChat Pay which, along with Alibaba Group's Alipay, is one of China’s two largest online payment platforms.
Many of the investors who are interested in the Reg S/144a paper are pension funds and mutual funds, the executive said.
Tencent has obtained a quota of $6 billion offshore debt from the National Development and Reform Commission (NDRC), the Chinese government agency that oversees bonds, but intends only to issue $5 billion of offshore bonds, for now, a source said.
The $5 billion paper will be drawn from Tencent’s Global Medium Term Note Programme. At the very beginning of April, the company announced that the maximum limit of its note programme had doubled to $20 billion. Tencent has $9.51 billion of outstanding notes under this programme, leaving $10.49 billion remaining.
The bond will price by the afternoon of April 3 Eastern Standard Time or early morning on April 4 Hong Kong time.
This bond will be issued in four tranches: five-year fixed rate or floating rate, seven-year fixed rate, 10-year fixed rate, and 30-year fixed rate. Initial price guidance for the five-year tranche is Treasuries plus 115 basis points; plus 140bp for the seven-year; plus 165bp for the 10-year tranche; and plus 185bp for the 30-year.
In comparison, Tencent’s 2023s were trading more than 20bp wider at Treasuries plus 89.6bp on April 3. The yield on the five-year paper has come in to 3.18% from 4.0% on December 11.
Moody’s and S&P have assigned ratings of A1 and A+ respectively to Tencent’s upcoming notes.
S&P said it expects Tencent's adjusted debt-to-Ebitda ratio to remain below 1.5 times over the next 24 months despite rising investment spending. The proposed notes won't meaningfully change S&P’s forecast for Tencent’s debt leverage, it added. The company's debt leverage was 0.5 times in 2018.
"The proposed notes will further enhance Tencent's already strong liquidity position, and enable it to sustain steady growth in revenue and cashflow," said Moody's senior vice president Lina Choi.
In 2018, Tencent's turnover from advertising and other businesses, including the WeChat Pay and fintech, rose 62% and contributed 44% of total revenue. Last year, the company’s net profit grew 10% to Rmb78.7 billion ($11.7 billion), while total revenue soared 31.5% to Rmb312.7 billion.
Proceeds of the bond will be used for refinancing and general corporate purposes.
