China’s integrated internet services company Tencent Holdings has lengthened its debt maturity profile with its debut in the 10-year space when it priced on February 4 a dual tranche US dollar bond offering totaling US$2 billion.

The Reg S/144A consisted of US$1.1 billion bonds for five years, which were priced at 99.797% with a coupon of 2.875% to offer a yield of 2.919%. This represented a spread of 162.5bp over the US treasuries, or at the tight end of the final price guidance of 165bp area (+/- 2.5bp).

The second tranche amounting to US$900 million for 10 years was priced at 99.605% with a coupon of 3.80% to offer a yield of 3.848%. This was equivalent to a spread of 205bp over the US treasuries – also at the tight end of the final guidance of 210bp area (+/- 5bp).

The bonds were priced at a spread differential of 42.5bp – marking the tightest five-year and 10-year curve among the global technology comparables, including Alibaba, Baidu, Amazon and Ebay. Tencent has lengthened its maturity profile at an effective cost with its debut 10-year offering.

Before launching the deal, Tencent conducted two days of targeted investor conference calls with key US accounts as well as a handful of investors in Asia. With strong support and positive feedback, the company announced the deal at the end of the second day of the roadshow during the US afternoon session, with an initial price thought of 185bp area over the US treasuries for a five-year bond and 235bp area for a 10-year bond. These represented a 20bp starting concession to Tencent’s implied fair value curve.

The early announcement into the US helped to secure combined anchors of about US$1 billion and gauged additional interest from a dozen other key accounts who indicated they would participate by following day US open.
Asian investors had a first chance to review this transaction at Asia open ahead of a handful of other deals, which were announced later in the morning on a busy day for primary issuance. Bookbuilding through the Asian and European sessions was supported by strong demand from a healthy mix of investors, with the order book multiple times oversubscribed by London mid-morning.

Tencent secondaries also tightened by about 5bp throughout the session due to lower treasuries and some bond buying on the back of the primary momentum. At New York open, the US accounts made a significant boost and took the order book to over US$17 billion after investors confirmed their overnight indications and new accounts had more time to digest the follow-up from the conference calls on the previous day.

The strong order book allowed Tencent to aggressively revise the final price guidance to 165bp (+/- 2.5bp) for five years and to 210bp (+/- 5bp) for 10 years. Both tranches were eventually printed at the tight end, with a slightly larger deal size for five years to reflect the issuer’s preference.

In terms of value, the new five- year bonds were priced flat to the curve-adjusted Tencent 2019s with no new issue concession. The 10-year bonds arrived inside of fair value on the back of a solid bid from the global fund managers and insurance accounts.

The final order book was of very high quality with more than 30 orders of US$100 million or larger counting across both tranches. The US real money investors were the main drivers on big orders, which was a good outcome of the US-focused marketing, but there was also substantial Asian and European institutional demand that was key to underpin momentum through the deal execution.

There was a small skew in demand towards the longer-dated tranche given the higher yield proposition and the scarce supply of Tencent and related tech paper in that maturity bucket.

The bonds were drawn under Tencent’s US$5 billion global medium-term note programme and the proceeds will be used for general corporate purposes. Lina Choi, vice-president and senior analyst at Moody’s Investors Service, says the bonds will further enhance Tencent’s already strong liquidity position, enabling the company to sustain a steady growth trajectory in revenue and cash flow.

The five-year bonds garnered US$7.5 billion worth of demand from 420 accounts with 46% of the bonds sold in the US, 37% in Asia and 17% in Europe. Fund managers were the biggest buyers with 63%; followed by banks 15%; central banks, insurance companies and pension funds 15% and private banks 7%.

The 10-year bonds generated a bigger order book of US$9.5 billion from 480 accounts with 45% of the paper distributed in the US, 33% in Asia and Europe 22%. Fund managers likewise accounted for the bulk of the bonds with 71%; central banks, insurance companies and pension funds 14%; banks 9% and private banks 6%

Barclays, Deutsche Bank and Goldman Sachs were the joint global coordinators for the transaction, as well as joint active bookrunners, along with J.P. Morgan. ANZ, Bank of America Merrill Lynch, Bank of China (Hong Kong), China Merchants Securities (Hong Kong), Citi and Credit Suisse acted as passive joint bookrunners. – CS