Tencent primed to use bonds for buying spree

PUBLISHED : Tuesday, 15 November, 2011, 12:00am
UPDATED : Tuesday, 15 November, 2011, 12:00am

Tencent Holdings, the mainland's largest internet company, plans to pursue new strategic acquisitions with proceeds from a proposed international bond offering.

In a filing with the Hong Kong stock exchange yesterday, Tencent chairman Ma Huateng said the company had received an 'approval in-principle' for the listing of these so-called senior notes on the Singapore Exchange Securities Trading.

The Shenzhen-based firm did not provide the amount of the proposed note issue, which is targeted at 'certain qualified institutional investors'.

Net proceeds from the proposed offering will be used 'for general corporate purposes, including working capital, replacing some of its existing short-term borrowings and potential strategic acquisitions'.

Goldman Sachs (Asia) and the Singapore branch of Deutsche Bank have been hired as joint global coordinators. Other financial institutions involved in the planned note issue are Credit Suisse Securities (Europe), HSBC, Barclays Capital and Citigroup Global Markets.

Tencent, which posted a 13.6 per cent year-on-year rise in third-quarter net profit to 2.4 billion yuan (HK$2.9 billion) has been ratcheting up its acquisition strategy to boost its operations on the mainland and expand overseas.

The company recently invested an undisclosed sum in mainland social-networking site website It paid HK$892 million to acquire a 15.7 per cent stake in software company Kingsoft Corp in July and about US$84.4 million to buy a 16 per cent shareholding in online travel services provider eLong in May.

In April last year, Tencent paid US$300 million to gain a 10.26 per cent equity interest in Russian internet firm Digital Sky Technologies, which has since been renamed Mail.Ru Group.

Standard & Poor's yesterday said it had assigned Tencent its BBB-plus long-term corporate credit rating and cnA-plus greater China credit scale rating and the outlook was stable.

Tencent was also assigned the same ratings for its proposed senior unsecured offshore notes. S&P said the ratings reflected the view the firm would retain its strong user base in its instant messaging and social networking services on the mainland.

'Stable cash flows and a prudent financial policy support Tencent's sound financial standing. The company maintained low leverage while pursuing growth, and has strong liquidity,' S&P credit analyst Katsuyuki Nakai said. 'Tencent's stable cash flows are attributable to its strong market position and its cash-collection system. About two-thirds of the [company's] total revenue are prepaid and therefore bear no credit risk.'

Nakai added that Tencent's rating could be upgraded 'if the company establishes a longer track record of strong earnings performance, successful business expansion, and steady earnings contribution from its newer businesses'.

Tencent shares advanced 1.46 per cent to close at HK$160 yesterday.