Chinese tech giant Tencent Holdings extended its curve to 40 years with a US$6bn four-tranche 144A/Reg S bond issue that drew strong support from US investors despite heightened political tensions between the two superpowers.
A US$1bn 1.81% long five-year January 2026 tranche priced at Treasuries plus 145bp, while US$2.25bn 2.39% 10-year, US$2bn 3.24% 30-year and US$750m 3.29% 40-year tranches came at spreads of 170bp, 180bp and 185bp, respectively.
The transaction came on a busy day in Asia, with a total of seven issuers raising US$10bn from US dollar bonds, and as US-China relations plumbed new lows over a new national security law for Hong Kong. US Secretary of State Mike Pompeo said on Wednesday that Hong Kong no longer warranted special treatment under US law because of the growing Chinese influence on the city.
Hong Kong-listed Tencent attracted orders totalling US$36bn at final guidance, including US$1.51bn from the leads, and bankers on the deal said the US-China tensions did not affect US demand.
"We've seen very healthy orders from traditional US investors," said one of the bankers. "The issuer has established relationships with investors over a few years. We've seen a very similar footprint and similar distribution compared with its previous deals."
Official allocation statistics were not available at the time of writing.
ASIA'S BIGGEST DEAL
Tencent's deal is the biggest international bond this year from a Chinese issuer and matched a US$6bn three-tranche offering from Malaysia's state oil company Petroliam Nasional (Petronas) in mid-April as Asia's biggest deal of 2020.
Despite the jumbo size, bankers on the deal claimed Tencent paid no new issue concession for any of the four tranches.
Final pricing came 30bp, 30bp, 40bp and 55bp inside initial guidance of 175bp area, 200bp area, 220bp area and 240bp area, respectively.
There was a wide range of market views on the deal's fair value, given the size and lack of liquid reference points at the long end of the curve. ANZ saw fair value at 140bp, 160bp, 175bp and 195bp wide of Treasuries, respectively, which would offer a decent 25bp–35bp premium across the curve over like-rated Alibaba Group Holding and a discount of around 30bp to Baidu, which is rated 1–2 notches lower. Research firm CreditSights saw fair value for the four tranches at 147bp, 157bp, 156bp and 171bp, after adding an extra premium for the issue size.
Those assessments implied a concession of 10bp-13bp for the 10-year and 5bp-24bp for the 30-year.
Another banker on the deal said those calculations were no longer valid at the time of pricing as Tencent's curve widened during the bookbuilding process.
For example, Tencent's 2029s were trading at 171bp over Treasuries when the new issue priced, so fair value for a new 10-year should have been at 175bp given the one-year extension. By that calculation, the 10-year tranche priced about 5bp inside Tencent's curve.
APPETITE FOR DURATION
The 40-year tranche, which helped Tencent to lock in ultra-low funding costs for a longer term, again demonstrated that high-grade issuers are taking advantage of strong appetite for duration in the current low-rate environment.
Tencent paid much less to extend its curve to 40 years compared with Petronas or even US tech giants such as AT&T, Apple and IBM, said the banker.
The reoffer yield difference between Tencent's 30-year (3.243%) and 40-year (3.293%) was only 5bp, while Petronas paid 25bp more for its 40-year notes than its 30-year notes in April, showing that the market has improved.
The transaction came after Tencent reported strong first-quarter results with revenue growth of 26% year on year and improved margins as Covid-19 lockdowns increased demand for gaming and social network services.
Nomura's trading desk said among TMT names in the market, it views Tencent as a "more resilient name with an improving business outlook against the backdrop of a weakening macro environment, widespread lockdown, and uncertainty of a potential second wave of the pandemic."
Tencent's new bonds performed well in the aftermarket with its long five-year bond trading about 10bp tighter, and the 10-year 1bp and the 30-year about 12bp tighter this morning, according to a trader. No active quotes were seen for the 40-year.
The bonds will be issued off the company's US$20bn global MTN programme and have expected ratings of A1/A+/A+, on par with the issuer.
Proceeds will be used for refinancing and general corporate purposes.
Bank of America, HSBC, Morgan Stanley and Goldman Sachs were joint global coordinators. Bank of China (Hong Kong), Mizuho Securities, Barclays, Credit Suisse, Deutsche Bank, ICBC (Asia), JP Morgan and SPDB International were joint lead managers and joint bookrunners.
Tencent last tapped the bond market with a US$6bn five-tranche deal in April last year.