September 6, 2019 / 9:23 AM / 10 days ago

Tencent wraps up biggest, tightest loan

* Loans: Tech giant takes advantage of strong liquidity to complete US$6.5bn financing

By Apple Lam

HONG KONG, Sept 6 (LPC) - Chinese tech giant Tencent Holdings has completed its largest offshore loan as a US$6.5bn club, taking advantage of strong demand for high-quality credits to secure its cheapest syndicated loan to date.

Nine banks participated in the five-year financing, which is split into a US$3.9bn bullet term loan and a US$2.6bn revolving credit facility. Chinese banks dominated the deal, accounting for US$5bn of the total.

Tencent’s journey in the loan markets mirrors that of Chinese e-commerce giant Alibaba Group, which rapidly became a familiar name with Asian lenders and took bigger and tighter priced financings.

“For names like Tencent and Alibaba, credit quality is not a problem. The big banks are particularly willing to continue to lend to these companies despite the increasingly low pricing,” a banker involved in the latest Tencent financing said.

Like Alibaba, which completed its debut loan in 2012, Tencent has made significant progress since its first loan signed in May 2014 – a puny US$200m five-year facility that paid a top-level all-in of 159bp based on a margin of 151bp over Libor.

FAMILIAR GAME

The two giants have been flagbearers for the wave of Chinese offshore loans completed in recent years, raising nearly US$45bn combined since 2012. Alibaba’s share of that flow is US$26.15bn, while Tencent has accounted for US$18.24bn in the past five years.

The duo has also been prolific in the international bond markets. In early April, Tencent raised US$6bn through a five-tranche bond that attracted US$27bn of orders. Tencent’s bond is the largest US dollar offering from an Asian borrower this year.

Bond investors haven’t had a taste of Alibaba since December 2017 when the company raised US$7bn through a multi-tranche offering that attracted orders of US$40bn.

Riding on the duo’s success, other Chinese new-economy companies, including the likes of search engine Baidu, e-commerce giant JD.com and smartphone maker Xiaomi, have successfully made loan market forays.

Offshore loan volumes from China’s technology companies have skyrocketed to a record US$16.51bn already year-to-date, compared with a mere US$1bn raised in the whole of 2018. That has helped boost China offshore volumes to US$91.82bn, already surpassing last year’s US$78.5bn total.

This year’s flow has also seen debut borrowers such as real estate portal Ke.com, in which Tencent is an investor, and Beijing Bytedance Technology, which counts Japanese technology behemoth SoftBank Corp as one of its investors.

GRINDING TIGHTER

On its latest foray, Tencent paid an all-in pricing of 85bp based on an interest margin of 80bp over Libor – the lowest loan pricing it has achieved so far. Tencent’s previous loan was in March 2017 when it raised US$2bn through a five-year bullet loan from a dozen lenders, paying a top-level all-in of 115bp based on a margin of 95bp over Libor.

The same year in May, Alibaba closed a US$5.15bn five-year bullet deal with 13 banks, paying an all-in slightly north of 100bp via the same margin as Tencent’s deal.

This year Alibaba completed an amendment-and-extension of its US$4bn five-year bullet term loan signed in 2016, cutting the margin to 85bp over Libor from 110bp and extending the tenor by a further five years.

Despite the reduced pricing, 30 banks joined the A&E exercise, an increase from 25 lenders including the eight original mandated lead arrangers and bookrunners when the loan was syndicated in 2016.

The strong response from lenders for both credits is hardly surprising. Both Alibaba and Tencent are rated A1/A+/A+ (Moody’s/S&P/Fitch) and present attractive lending propositions given their dominance of the tech landscape in China.

In 2018, Tencent’s revenues and net profits totalled Rmb312.7bn (US$43.75bn) and Rmb80bn, respectively, while Alibaba clocked respective figures of Rmb376.8bn and Rmb80.23bn.

Between the two, Alibaba holds the distinction for the larger loan – a US$8bn three-tranche borrowing in July 2013 that paid top-level blended all-in of 314bp based on margins of 225bp and 275bp over Libor and remaining average lives of 2.83 years and 4.11 years respectively. ( Reporting By Apple Lam; editing by Prakash Chakravarti and Chris Mangham)

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