Copyright © BusinessAMBE 2023
Key takeaways
- Tencent plans to raise around 3 billion dollars (2.6 billion euros) through the issuance of bonds in two currencies.
- New regulation is boosting investor demand for the company’s offshore yuan bonds.
- Massive AI spending is intended to counter falling revenue and competitors.
Chinese tech and gaming giant Tencent plans to issue bonds in two currencies to raise around 3 billion dollars (2.6 billion euros), with pricing possibly taking place as early as Tuesday. That is what Bloomberg writes. Although regulators have authorised the company to issue up to 4.5 billion dollars (3.9 billion euros) in offshore debt securities, sources indicate that the company may not use the full approved amount.
First dollar bond issuance since 2021
This move marks an important return to the dollar bond market for Tencent, which has not issued such bonds since 2021.
Moreover, it is only the second time the company has offered “dim sum” bonds. The exact volume of the issuance remains flexible, as it will be adjusted based on investor interest.
Maturities of up to 30 years
To implement the plan, Tencent has engaged investment banks to manage various maturities. The dollar-denominated bonds are expected to have maturities of 10 and 20 years, while the offshore yuan bonds will have maturities of 10 and 30 years.
The company plans to use the capital mainly for general corporate purposes and for refinancing existing debt.
Regulatory changes
The timing of this issue coincides with new changes in Chinese regulation that allow major insurers to buy dim sum bonds via an expanded southbound investment programme, which has increased demand for yuan-denominated debt issued abroad.
Managing future debt obligations
With regard to short-term obligations, management noted that Tencent faces 3.5 billion dollars (3 billion euros) in maturing debt and bilateral loans this year, and a further 2.8 billion dollars (2.4 billion euros) maturing next year.
Although no public offshore bonds mature in 2026, a 2.5 billion dollar (2.1 billion euro) bond is scheduled for repayment in 2028.
Strategic shift towards AI
The financial strategy comes at a time when Tencent is going through a period of slowing revenue growth, the weakest in six quarters. That trend has accelerated the company’s shift towards AI.
Tencent has pledged to more than double its AI spending this year to over 5.3 billion dollars (4.6 billion euros) in an effort to close the gap with competitors such as Alibaba and ByteDance, which are currently leading in the development of large language models and user integration.
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