• 564 days Will The ECB Continue To Hike Rates?
  • 564 days Forbes: Aramco Remains Largest Company In The Middle East
  • 566 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 966 days Could Crypto Overtake Traditional Investment?
  • 971 days Americans Still Quitting Jobs At Record Pace
  • 973 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 976 days Is The Dollar Too Strong?
  • 976 days Big Tech Disappoints Investors on Earnings Calls
  • 977 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 979 days China Is Quietly Trying To Distance Itself From Russia
  • 979 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 983 days Crypto Investors Won Big In 2021
  • 983 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 984 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 986 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 987 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 990 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 991 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 991 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 993 days Are NFTs About To Take Over Gaming?
Is The Global Bond Bubble About To Burst?

Is The Global Bond Bubble About To Burst?

The global bond bubble is…

Aramco Bond Run Could Delay IPO

Aramco Bond Run Could Delay IPO

The overwhelming demand for Aramco…

China’s $13-Trillion Bond Market Joins Global Index

China’s $13-Trillion Bond Market Joins Global Index

The Bloomberg Global Aggregate Index…

  1. Home
  2. Investing
  3. Bonds

Chinese Tech Giant Tencent Completes Asia’s Largest Bond Sale

Tencent

China’s social media and gaming heavyweight Tencent Holdings (OTC Pink:TCEHY) said back in February that it had no plans to scale back on investments after a record 16 companies it had invested in went public last year. It’s definitely put its money where its mouth is, with company president Martin Lau saying that Tencent has invested in more than 700 companies over the past decade--of which 63 are now listed and 122 are valued at more than a billion each.

But now, the tech giant is taking things one giant step further … It’s paying a visit to the capital markets.

Tencent has completed a huge $6-billion bond sale, and the proceeds are earmarked for refinancing and general corporate purposes. The bonds are of varying maturities with $3 billion being 10-year notes; $2 billion are five-year notes while the rest is split equally between 7-and 30-year notes.

Refinitiv data has revealed that the bond sale is the largest on the Asian continent so far this year and more than twice as large as the previous record set by property developer China Evergrande Group’s $2.8-billion January issue. The interest rates are reasonable, too, ranging from coupons of 3.280 percent for the five-year notes at the low end to 4.525 percent for the 30-year bonds at the high end.

Related: Positive Economic Data Weighs On Gold

Tencent joins a group of Asian tech firms that are participating in the Asian debt rush as their market values continue to swell.

The successful sale is a big vote of confidence in a company that found itself deep in the doldrums for much of last year. TCEHY shares have managed a healthy year-to-date return of 22 percent though they have underperformed the Chinese benchmark, KraneShares CSI China Internet ETF (KWEB) which is boasting a 29.5 percent gain over the period. Tencent, Alibaba Group (NYSE:BABA) and Baidu Inc. (NASDAQ:BIDU) in that order are the biggest weightings in the ETF.

(Click to enlarge)

Source: CNN Money

Tencent last tapped the bond market in January 2018 after it issued $5 billion worth of bonds. On Monday, the company flagged that it had doubled its global bond authorization from $10 billion to $20 billion even as interest rates across most markets remain low.

Investors can therefore expect to see the company visit the debt market a couple more times before it can reach that limit. They need not worry, though, since the company’s debt-to-equity ratio of 0.6, though higher than the 10-year median of 0.43, still compares favorably with the industry average.

Tencent shares were nearly cut in half last year, tumbling from their all-time high after China’s gaming regulator put a nine-month freeze on new game approvals thus denying the company a chance to  monetize popular titles including ”PlayerUnknown’s Battlegrounds” and “Honor of Kings.” The ban was only lifted in December.

Tencent is actually more of a conglomerate rather than a pure-play gaming company like GameStop Inc. (NYSE:GME) or a social media player like Facebook Inc.(NYSE:FB). The company also owns a string of high-profile investments including Tesla Inc. (NASDAQ:TSLA), Spotify Technology (NYSE:SPOT), Snapchat Inc. (NYSE:SNAP) and Hollywood film and TV. Gaming is a big part of the company, and last year’s hiatus resulted in a 35 percent Y/Y decline in profits, the worst showing by the company ever since it went public.

Tencent’s massive investments have, luckily, kept it in good stead. The company managed to quickly return to profit growth during the final quarter of the year thanks in large part to its investment in Meituan, a food-delivery startup that went public last year in a $4 billion IPO.

Chinese stocks doing well

The fact that Chinese shares have overall been doing so well in the current year in the midst of one of the worst trade wars in recent history is perhaps baffling for some investors. Indeed, trade tensions were to blame for the poor performance of the shares during much of 2018.

Nevertheless, the mood has improved quite a lot this year.

Related: SEC Releases New Token Sale Guidelines

Bloomberg has reported that a trade war truce is now in sight with presidents Trump and Liu scheduled to meet. A few days ago, data from the country showed that manufacturing activity had experienced an uptick during the  month of March to reach a six-month high PMI (Purchasing Managers Index) reading of 50.5.

Further, the constant stream of negative news has tended to overshadow the continued growth of China’s retail sales and services sector not to mention its rapidly growing capital markets.

On Monday, Bloomberg kicked off the process of adding hundreds of Chinese bonds to its portfolio thus expanding the universe of publicly traded Chinese assets.

While the systemic risks associated with investing in China including deteriorating credit risks and high state involvement in the equities market still remain, the Asian nation is undoubtedly becoming a more investable space than it was a few years back.

By Alex Kimani for Safehaven.com

More Top Reads From Safehaven.com:

Back to homepage

Leave a comment

Leave a comment