Despite the continued tension of the Sino-US trade wars, Tencent Music went straight to the top of the charts with its debut bond last week which saw the paper oversubscribed almost 13 times.
China’s largest online music entertainment platform raised $800 million in a five-year and 10-year SEC-registered senior notes. The $300 million 1.375% five-year paper priced at 99.928 to yield 1.390% while the $500 million 2% 10-year notes priced at 99.595 to yield 2.045%.
This is the equivalent of Treasuries plus 110 basis points and 135bp respectively.
The demand for the paper was significant across both tranches which allowed final orders for the book to tip $10 billion.
Banks on the deal were able to squeeze pricing 45bp on both tranches from initial price guidance, indeed, the bond priced inside the curve of of its parent.
Tencent Music is majority-owned and controlled by internet behemoth Tencent Holdings.
“That kind of demand shows that investors are more-level headed than the headlines [suggest]. It plays to the liquidity that is currently out at the moment and how issuers can get very good terms in primary markets,” a banker close to the deal told FinanceAsia.
“[Tencent Music] is a strong name and you would expect a single A rated cash-rich company to perform well in bond markets,” he added.
New York-listed Tencent Music is rated A2/A/A by the major ratings agencies.
Given the under allocation, there was demand in secondary and the bonds traded firmer after the break.
PLAYING IN TUNE
There is no doubt about it that Tencent Music has had a good year and has benefitted from the significant fund flows into entertainment stocks that have been seen in the region.
Over the past six months, allocations in entertainment stocks saw the percentage of funds invested rise by 10.3% – the most of any industry group. The average weights in the entertainment industry group stand at 2.1% with a record 61.9% of funds invested, according to Steven Holden of Copley Fund Research who publishes on Smartkarma.
In early August, Tencent Music reported a 17.5% jump in quarterly revenues to Rmb6.9 billion ($981 million), with online music subscription revenues surging 64.7% year-over-year to Rmb1.3 billion.
“As the industry leader of China’s online music market, we continue to pioneer and make contributions to support the development of the industry. Our efforts include continuous advocation of the pay-for-streaming model, deeper cultivation of indie musicians, promotion of digital albums and our innovative online concert TME Live,” said chief executive Cussion Pang
“To top artists, our platform is not only the preferred destination for digital album releases but also a unique performance venue to interact with fans real-time,” he added.
Tencent Music, which operates the country’s popular music apps QQ Music, Kugou Music, Kuwo Music and WeSing, recently signed a multi-year contract renewal with Universal Music Group, which has artists like Lada Gaga and Metallica. The companies intend to form a music label to drive the growth potential of digital music in China. It already owns a 10% stake in the business.
And at the beginning of July, it announced a strategic partnership with leading Japanese animated movie studio CoMix Wave Films which has helped push itself into another entertainment vertical.
On the back of this activity, shares in Tencent Music itself are up more than 20% over the past year, according to Bloomberg.
GLOBAL DEMAND
But what makes the bond deal stand out is its global demand despite the sabre-rattling in the ongoing Sino-US trade war.
In early August, US President Donald Trump signed an executive order banning all US transactions involving WeChat, a message app which is owned by Tencent Holdings.
The company itself has, unsurprisingly, been quiet about trade issues. Tencent itself merely said in a statement that it is “reviewing the potential consequences of the executive order”.
Tencent Music has also knocked back questions about whether it will seek a secondary listing closer to home like NetEase, Alibaba and JD.com or delist from the US.
Reuters reports that chief strategy officer Tony Yip called such speculation “premature” on a recent analyst call.
But the furore surrounding the ban did not appear to sour the tone on Tencent Music’s (virtual) roadshow for the bond at all.
“The headlines about divestiture [from Chinese stocks] is one thing, the reality is, is somewhat different,” said the banker.
“The US uptake on this trade was very strong. There can be no US administration impact on this business, so it’s a very defensive, very pure-play China transaction,” he added.
The overwhelming majority of the paper went to fund managers, but final allocations were pretty evenly split around the world with US books getting 39%, Asian books getting 35% and the remaining 27% going to Europe.
Bank of America, JP Morgan, Goldman Sachs and Morgan Stanley were joint bookrunners and joined as lead managers by Bank of China (Hong Kong), Credit Suisse, Deutsche Bank, HSBC and Mizuho Securities.
