Asia-Pacific Loan: Tencent Holdings’ US$3.5bn acquisition loan

IFR Review of the Year 2016
3 min read
Prakash Chakravarti

Ahead of the game

Chinese internet giant Tencent Holdings capped a busy year in the loan markets with a US$3.5bn financing for its purchase of Finnish mobile gaming firm Supercell, completing the deal smoothly and in remarkably short order.

Hong Kong-listed Tencent announced its US$8.6bn purchase of a stake of up to 84.3% in “Clash of Clans” maker Supercell in mid-June – only days before Britain voted to exit the EU – and wrapped up the syndicated financing in October just four months later.

Tencent’s largest acquisition to date was also the world’s largest buyout of a game developer, while the financing marked the borrower’s debut leveraged loan.

It also faced several challenges when it approached its relationship banks in early July for a non-recourse loan with a five-year maturity. Banks were nervous about the impact of market volatility in the aftermath of the Brexit vote, while the asset-light internet sector has only recently begun to win over Asian lenders.

Supercell also lacked a long track record, having been founded as recently as 2010. While it has only launched four titles since then, all are commercial hits, quickly making Supercell the world’s largest standalone mobile games company.

It was far from clear that Tencent’s M&A financing would attract enough lenders after a glut of big borrowings from the sector, particularly as it was a non-recourse facility.

Tencent made its own syndicated loan market debut just two years ago, and had wrapped up credit lines totalling US$6.89bn in the seven months before it announced its Supercell purchase.

In early June, Tencent closed a US$4.44bn five-year loan that was tripled from its original size of US$1.5bn following commitments from 25 banks. That followed a US$2.45bn five-year facility Tencent had closed in December with 19 banks.

Asian lenders had also only recently participated in two other big loans from the Chinese technology sector. Around the same time as Tencent closed its loan in June, internet company Baidu was signing a US$2bn five-year financing. Those deals also followed e-commerce giant Alibaba Group’s US$4bn five-year loan in April.

However, Tencent provided credit enhancements in the form of letters of comfort and undertaking, and it also paid generously compared with the company’s previous two transactions. The top level all-in pricing was 235.1bp based on a blended interest margin of 212bp over Libor and an average life of 4.314 years.

The financing closed within six weeks of launch into general syndication in mid-August. Underscoring Tencent’s enormous appeal, a total of 23 banks participated, including seven MLABs – ANZ, Bank of America Merrill Lynch, Bank of China, China Merchants Bank, Deutsche Bank, HSBC and Shanghai Pudong Development Bank.

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