Tencent primed for more M&A deals after big bond issue

PUBLISHED : Saturday, 12 April, 2014, 12:59am
UPDATED : Saturday, 12 April, 2014, 12:59am

When Tencent president Martin Lau Chi-ping was asked at a press conference last month about the company's growing rivalry with Alibaba, he described the media's portrayal of normal industry competition as "melodramatic".

On Thursday, Tencent may have ratcheted up the drama by announcing its biggest bond issue ahead of e-commerce giant Alibaba's much-anticipated initial public offering in the United States.

Analysts said the new US$5 billion medium-term note programme established by Tencent, Asia's largest-listed internet company, would support the company's strategic acquisition plans.

In a filing with the Hong Kong stock exchange, Tencent said the notes would be sold to "qualified institutional buyers", with Deutsche Bank as arranger. The net proceeds would be used for "general corporate purposes" and be drawn down at certain intervals, based on market conditions or corporate requirements.

Ricky Lai, an analyst at Guotai Junan International, said the funding would help Tencent "target new acquisitions in both the domestic and international markets".

Last month, Tencent said it would step up investment this year in digital content, mobile utilities, online financial services and the international expansion of messaging platform WeChat.

The China Banking Regulatory Commission has approved Tencent's application to operate a private bank, a Shanghai Securities News report said yesterday. Tencent and Shenzhen-based Baiyeyuan Investment teamed up to establish Qianhai Bank.

Standard & Poor's forecast "a stable outlook" for Tencent, despite intense industry competition. The agency assigned its "A" long-term issue and "cnAA" Greater China regional scale ratings to the internet firm's bond issue.

Investors, however, seemed skittish as Tencent's share price dropped 6.75 per cent to close at HK$525 yesterday.

Alibaba, Tencent and online search leader Baidu have been the mainland internet companies most aggressively pursuing large acquisitions since last year.

Alibaba leads its peers with deals worth more than 24 billion yuan (HK$30.2 billion) to date, which could boost the firm's valuation for its US listing.